DAPPCON 2025: Staking- Modular Value accrual for Protocols - Dennison Bertram

Transcript

Great. So, good morning everyone. Uh, I'm going to speak today, the title of my talk today is the time is now. Basically, I'm going to be talking about regulatory changes that are happening in the United States right now which are affect um people who are building protocols, people who believe in decentralization, um, people who are building things in DeFi. Before I start the presentation though, I do want to give a little bit of context about what is happening right now and kind of the general history of organizations um specifically limited liability joint stock corporations and how that relates to Dows. There's a common misconception that the corporation was kind of an inevitable result of market forces that

led people to pull their capital for joint ventures at a large scale. People kind of assume that this was kind of faded to happen because of the nature of the market. But this is actually not true. And this understanding is really important to be able to frame what is happening with crypto today with our ideals and values in crypto today. What is happening with decentralization? What is happening with DeFi? What's happening with the US government and what we see happening around the world. Originally joint stock corporations were a creation of political necessity. Joint stock corporations were actually the creation of the state.

There was a period of time in which people did not actually think organizations should last longer than the human body would last. Their idea was is that the only thing eternal was the state and the state alone. Um before the joint stock corporation actually people believed that joint sock corporations were a bad idea and this might seem strange but people thought there there was this there there's this idea that if you didn't have direct responsibility you wouldn't do a good job at operating.

So before the joint stop corporation everyone had unlimited liability for everything that they worked on. If you started a business with someone um and you went out of business or you had some debts, you were liable for absolutely everything you had. They used to say up to your your cufflinks. And this parallels the situation that DeFi and Dows have been in for the past few years, right? You have a token, you are in a DAO. Well, surprise surprise, you have unlimited, unseverable liability up to your cufflinks for anything that any other token holder in this organization did. And of course, we always talked about how crazy that sounded and how dumb that was and how it

made no sense. But this was actually the natural state of the world for a long long time. And people believed in it. The leading economists in the 16th and 17th centuries, they believed that you required this kind of unlimited liability for the correct and profitable operation of organizations. If you did not have this unlimited liability, you would somehow be lazy. In fact, when first joint corporations started to appear, uh prominent, you know, economic thinkers thought this idea of if everyone had ownership, there would be actually no operation, right? So what changed primarily is that the state needed to finance new kinds of operations that were beyond their own

control and they had a specific kind of fear of the organizations that did exist in the time that could pull capital namely things like monasteries. One of the ways that the state used to you know tax the people was they would tax your property when it passed from you know a descendant to someone else. like you died and you transfer your property, there would be a tax. But if you gave it to the monastery, well then the church could just hold on to it forever. The monastery could hold on to it forever. So what happened was um primarily there were there were a number of like large things that happened in colonialism that required a lot more capital than you could get from a single rich family or a couple of rich people who pulled their money together. Right? These were very

risky things. Voyages to the other side of the world, right? These kinds of things people wouldn't put their money up for because if something happened they would lose everything they had, right? It wouldn't matter if you were the smallest shareholder in some sort of operation, you were liable 100% for everything. So the state created political organizations called joint stock corporations where you would actually get this limited liability, this idea that you would be liable only up to the amount of tokens that you held, right? And no more. And this allowed people to pull capital in greater numbers. But it was not something that the market liked. The market thought that this was a way for

people to be lazy, to not participate, to reap these benefits. And if you look at actually what the situation has been with Dows in the past couple years, in many ways, you'd argue that they were right. Vast number of token holders don't do They don't do anything in these organizations, right? And this was actually a great fear in the middle ages and and later am around economic thinkers. So the joint stop corporation and this limited liability and this recognition of the corporation is a political creation. Not only is a political creation but it continues to be in many ways a political creation. This idea of personhood for the corporation is a legal fiction that changes quite often.

And in fact, many of the largest corporations today remain weird public private hybrids. If you think something like Elon Musk and his company and how many subsidies he directly receives from the government, when you look at any of these large corporations, most of them exist thanks to some form of state sponsorship. The corporation remains today a political entity more than it actually is an economic one. So jumping into the presentation, the time is now. What we see happening is is that this same change that occurred around the time of you know colonialism and the the explosion of uh railroads is happening again with Dows and

decentralization. The state sees a new threat to its power structure where the definition of organizations comes from software from code. Just as monasteries were able to suck tax dollars and suck revenue out from the state, protocols are now able to take value away from the state in a different way. It is both a threat but an opportunity. The opportunity though is not a natural market opportunity. And in many ways, if you think about it, the especially in the past few years, the amount of sort of like hate and vitrol that crypto community has sort of gotten from the larger uh world out there, you would agree, right? The state sees now sees

value in what we're building, although many ordinary people generally haven't as of yet. So what I'm going to talk about is these regulatory updates. Uh my name is Dennis Bertram. I am uh CEO and co-founder of Tally. We are um the sort of basically leader in building tooling for decentralization in the ecosystem. We've been doing this for the past 5 years. Um big disclaimer, I am not a lawyer. None of this is legal advice. Uh I have to get that out there. Very important.

So what's happening right now based on sort of like what I was just mentioning is is that we're getting this regulatory clarity. The state is defining decentralization the same way it defined limited liability. It defined the corporation. It is not a market factor that's happening. It's a political arrangement that's happening. We see new legal entities the Duna in Wyoming and onchain committees such as Borgs being created. the SEC, Congress, top Dows, everyone is starting to work together and say, "Hey, we need to go colonize India. We need more money. We need to build railroads.

We need more money." Right? Organizations today are starting to work with the government to say, "Hey, we need limited liability so we can do bigger things. We need proper decentralization so that we don't have to, you know, rely on centralized control elements." the SEC D5 roundtable. This was maybe a week ago uh or two weeks ago. Um you can see what the commissioners were saying which really speaks to the regulatory shift, the tone of shift that's happening in Washington, right? Pierce has said that publishing code is not the same thing as offering securities, right? That creating software is free speech. Atkins validators aren't broker dealers. Uetteda collaboration is more

important right now than enforcement and krenshaw better to do it right than fast which maybe isn't as productive as we want. I'm sure everyone here wants it fast uh more than anything else right but this is a very clear regulatory tone shift. Um we've been working through the market structure bill. This is a draft. It's not law yet, but we've been working through this. And the most recent version of this is the Clarity Act, which has um passed some parts of the government, but essentially defines digital commodities and DAO related exemptions from securities laws. Right?

We are creating a new political entity, the decentralized organization. And what is going to define decentralized organizations is a rules-based system based on what is control, who operates these organizations right? Genius act is another piece of regulatory update here which is very interesting. Stable coins, right? Establishing payment stable coins as this distinct regulatory category. This again is a very interesting idea, right?

This is clearly political, right? Obviously, Circle exists. They've IPOed. We've got stable coins. Tether's been out there, you know, whether or not New York State has liked it, right? But in effect, with the government saying, "Hey, we are going to create a special category for stable coins, it's a political arrangement, right? The United States and many other governments are saying, "Okay, our compete currencies, they compete on this global market. We need regulations around it so that we can win." This is very important for people who build Dows and decentralized organizations because it gives a clear regulatory path for stable coin use, right? That's very important. If these organizations have money and they have a lot of money and they spend money, they

need more regulations around what kind of money they can use. Very important. Staking. Staking is a very new idea in the grand scheme of things, right? Um it has existed in a little bit of a regulatory gray zone. So what's going to happen now? Right, the SEC has acknowledged that validator operation is not financial intermediation. Probably remember in the past few years we've been very concerned. If I run a wallet service, am I X? If I run do staking, am I Y? Right? This seeks to clarify this protocol staking and node operations are exempt from securities classification. There's a distinctive distinction made between passive token staking protocol level and active poolled financial products. And

this also circles around the idea of control. And in general, this signals a growing acceptance of staking as a core infrastructure, not an investment contract. Right? Again, this is very important. This is very political. This is an interesting one. A16Z Miles Jennings. He recently put out um an article called the end of the foundation era. It's a really good read, but it talks to how many of the legal structures that we've had set up in the past four plus years were actually defined by the regulatory murkiness that we had. We built kinds of foundations to separate responsibility to intermediate token holders and founders. But what

Miles Jennings is saying is is that actually in this new paradigm um we are not going to need foundations. We are going to have the kind of regulatory clarity that allows founders to build and launch tokens and operate together. And if the Clarity Act passes fully in in its current embodiment, we will also have a clear road map to when something gets decentralized and what the definition of centralization is. So in this article, I highly recommend it. He talks about um how these foundations were structured. Uh there has been a lot of push back on this as well. Depends on if you are a big foundation fan. Um if you understand

very well what foundations are used for and how people use them. U there are other great reasons why people use foundations. Cayman's for one is has substantial tax benefits. It's really unclear how we onshore existing foundations. uh to the United States. Uh it is a bit clearer now how we're probably going to be able to build uh foundations in the United States. Things are going to be able to be for example like a benefit corporation. You'll be able to use a Duna. You'll be able to use things like Borgs to wrap specific parts of protocols where you have this legal fallback for onchain operations.

And this is all very interesting because we started this whole movement with this idea of code is law. And of course the government says well no law is law and what's happening now is kind of the merging of these two things. So the DUNA if you haven't heard about it it's a Wyoming law basically gives legal personhood to decentralized organizations. Um that's very exciting and that is on the order of you know the original idea of legal personhood for corporations. Now you can have legal personhood for this association of token holders operating a protocol. Um you don't have to have a board, no shareholders, but it can sign contracts, open bank accounts, file taxes. Um the

government of course is very very very concerned about that third thing there filing taxes. Uh it gives us limited liability and many organizations are considering this. I think nouns is already a duna. Uh unis swap is considering the duna. uh many other organizations especially in the United States are considering the Duna for at least some part of their project or protocol. Borgs this is a a idea that comes from uh Gabe Shapiro uh basically this idea of a legal onchain uh wrapper. It's a smart contract governance with enforcable bylaws in the the legal side.

Um ZKYC is a is a example here of using it. Um they use it to wrap their guardian councils and security councils. Um yeah so zksync they wrap their security council their guardian council uh using Borgs. So there is an onchain component that specifically says what people can do on chain and then there's a legal part around it that covers if someone doesn't behave as they're expected to unis swap right the foundation feedback group recently made a post they support the Duna transition for unis swap unis swap is actually a foundation out of the United States they're based out of New York uh and they're thinking about launching a Duna and the that'll

hopefully happen in the near future or at least that'll go up for vote in the near future. But the big goal here is to reduce friction, expand capabilities, things like signing documents and protecting token holders because protecting token holders there there's something very important to note here. Token holders are liable for two things. One, the government can go after you, although now that concern has been somewhat lifted, but private plaintiffs can go after you, which is the real important part that Duna is trying to solve here. You need to give this limited liability so someone can't just buy a UNI token, have it go down in price, and then sue everyone in the Dow for having lost money.

So, what should builders be doing next? Uh, well, if you're building, because I'm running out of time, so I'll go a little bit fast here. Evaluate things like Dunas, evaluate things like Borgs. You could definitely come and talk to us at Tally. Uh, we do a lot of this. This is what we live and breathe. um engage with the regulators if that's something you feel comfortable doing. Why it matters uh this going back to sort of like what I started with the modern world is shaped based on this political arrangement that emerged out of uh primarily Europe but it happened in other places as well of giving limited liability.

This modern world is transitioning right now to a world that's going to be powered by decentralized organizations and it again is going to be a political moment that is going to enable the growth of so many things. A great example is the Earl Wall Street in the early days of Wall Street existed mainly only to trade railroad stocks. And I like mentioning that because when you look at crypto um the crypto markets today traditionally exist kind of in many ways only to trade things like meme coins or defy protocol stocks, right?

But of course today the stock market trades everything. And I think we should think about what the future of crypto looks like where today we may use it to only do a small number of things but actually the innovation here will eventually allow us to do everything. Final thought, we might really actually do it this time, right? If we get the Clarity Act, if we get the Genius Bill, if we get these things, at least in the United States, we will have workable regulatory framework for decentralized organizations. And if you look at the history of the Joint Stock Corporation, once they existed, every other jurisdiction rushed to implement a version of it because it was so highly

competitive. we should expect to see this kind of growth if we get this legislation. Right? So that's very important. It's important also for us as builders, us as founders to sort of start orienting our projects, what we build, our protocols, our vision towards a future that is vastly larger than we're probably even thinking today. So here's some resources we're just launching today. CL cryptoclarity US. It's basically a chat bot that'll talk to you about all new things in the regulatory space. It's updated regularly so you could understand how the SEC is thinking about it, how the CFTC is thinking about it. Um, lots of great sources there. You could always ask us a question at tally uh.xyz. We're experts

in this. We help many projects. So, if you're looking to decentralize, be compliant, come speak with us. Yeah, there's a QR code if you want to learn more. But yeah, the time for this is now and I for one am super excited for it. Thank you, Denny. Uh we have a few moments or a few minutes for questions here. We have a question up there.

Oh, the the microphone's coming for you. One of the challenges that um a lot of DAPs face is like the regional or localization problem for jurisdictions. So, I think one of the benefits obviously of an offshore foundation is that you're you live nowhere. But when you start to situate your compliance in one jurisdiction versus another, you have the same DAP with different rules depending on where the users are accessing it from. wondering if you think about how these applications should approach that. Yeah. So, there's kind of two pieces to that. Um although so the French actually had a form of the joint

stock corporation um that was a little bit more liberal before the British and the British were very nervous about expanding um the idea because originally corporations actually they were chartered and they allowed you to do things like have an army for example as your corporation. Um but America and France and some other places they they specifically France they liberalized their rules and what happened in the UK was UK corporations incorporated in France amended business in the UK and that was a big reason why the UK ended up um liberalizing its its rules because of this like regulatory competition. I would expect us to see that as well.

what I think is going to happen most likely right now for people who are building and sort of deciding the sort of you know where they're going to be doiciled they'll probably be doiciled in the United States and the United States will probably become the sort of gold standard for what um the the rules look like and most likely in other regions where they're trying to be competitive they'll probably try and do something even more liberal than that. Uh so it we do however exist right now and a little bit of a wait and see to figure out how these things are going to like work. But even within the United States you'll have a thing where um you know individual states have their own sort of applications and laws. So you know for example I'm based in New York and most of the cool new crypto stuff like debit

cards and stuff like that we can't use there. So, we'll probably still see a lot of hodge podge of of sort of application, but you know, with this clarity um coming, we'll probably see that like open up and and become more uniform very quickly. And another question for Dennis down here. Hello. Um so I think a big problem in adoption by now has been that we speak in echo chambers. The government on their side, the the private sector, the companies on their side. Do you get involved in this process of building legal frameworks like the one in in US?

Yes. No. And uh how do we make our voices heard more the governments to take more into account the technical part the I don't know the the needs for developing this industry while of course protecting the customer and still encourage uh the development and evolution of the of the industry. Yeah. So the echo chamber thing is real but it's probably a little bit less of an impact today than it's historically been. Um, if you follow the echo chamber on on Twitter these days, uh, most of crypto is in DC now. Uh, so I think a lot of crypto organizations do have kind of a direct line with the government.

Uh, we're in a very bizarre place where now, you know, I think, you know, maybe people in DC have more exposure to crypto than maybe people in this room. Uh, which is pretty wild. Uh, you can definitely write the SEC. you can definitely reach out to your local organizations or local regulatory jurisdictions to leave a comment. Uh I think at this point that concern is is you know that would have been a greater concern to me a year ago than it is today. Today there are a lot of people who are you know you look at A16Z you look at Culie you look at you know many of the great lawyers in the space um they are present in DC if you look at you know you know there's originally for this presentation I had a image of Stani at the capital building you know he was

there you know last week speaking with regulators and and legislators so I think actually finally we have that um platform in in the government again this is going to be a legal construction. Decentralization is going to become a legal construction in many ways and there's a lot of advantages for the government in that u. So I think you know the same way that like you know most economists and business people didn't want joint stock corporations but the state needed it. We're actually at an inflection point where that's happening with crypto as well. Please give it up for Dennis. Thank you so much Dennis.