#DappCon22 : Day 1 - Corpus: From DAOs To GmbHs, Christoph Jentzsch

Transcript

thank you so thank you very much last Talk of the day so I'm the only one standing between you and the after party so but I still have some exciting stuff to share can we get slides or clicker perfect okay it's not the same flights no but you can also go with those it's okay so Corpus Ventures who are we we are building Avenger Studio Venture Studio means we are building lots of different web free projects one after the other and all in-house with our own fundings and obc's so on people

from ideation to building the MVPs to scaling it up and so just want to mention some other projects you might have heard of so one is dm3 dm3 is a protocol for decentralized messaging just using your ens name as a user profile attaching your public encryption key to it as the enes text record and your url that you send a message to and if protocols or messenger support this dm3 protocol we have actually cross messenger communication so that's the the goal of dm3 you can check it out at dms3. Network then we have another product called gas Hawk actually the gas hog team is also sitting here think oh this is one perfect okay and gas hog is for saving gas on

ethereum it's actually very simple you can set us as your RPC provider emitter mask and we wait for you to send the transaction at a better time so you save some gas costs so it's for non-time critical ethereum transactions and an average we save about 30 percent if you're willing to wait for about one hour so you could even say something like load balancing the ethereum chain for but don't send it when there's a high demands and when there's a low demand we are basically timing your transaction you can find out more on gashog.io so today I want to speak about couples.io it's about tokenizing chain BH shares so I want to give you a bit of my backstory which then leads to a corpus and what it will accomplish

so if you think about the firm as a construct a lot of wealth has been created just because of the way people organized like back in even 1600 something when people started to have entities grouping people having something like shares and a lot of wealth has been created just because people were able to come together into a firm that you construct and people are able to put money into it and there were some laws regulating how they should behave so the firm itself is actually a great invention and responsible for a lot of wealth we have right now and if you think about what is there's ownership of shares they are usually managed in either a national register and Germany this is the handles register for gmbh or just contracts which are web

design told by the company maybe in some safe like stocks how is change of ownership done since actually hundreds of years you signed contracts depending on the type of the organization you have to use a notary then today people use convertible nodes to prevent some of the bureaucracy but I actually think convertible notes for Investments are terrible for many reasons they raise in rounds seed rounds they were a b c d and mostly most Investments come from professionals like VCS or business angels what does it mean for most companies like cheap BHS which are in their early stages you have very poor liquidity there's no real like trading of gmbh

shares going on because of all this bureaucracy happening and the hurdles you have here and investment in general or huge as New Castle I mean I'm in the space in the long time now and I've worked as a business Angel since many years I've done dozens of Investments and those investments in especially in Europe you have Estonia you have Switzerland France and they all use different contracts sometimes they don't even send them in English you just send them in French so it's like a total mass actually if you invest in U.S companies it's a little bit better they usually have a Delaware Inc then they use something like angelist or Carter to manage their cap table it's more or less standardized they use the more or less the same convertible node not perfect but okay but in Europe we actually have

a huge problem when it comes to business Angel Investments or family and friends round when I had met a previous company which was slogged I sometimes family and friends is asking me can I invest in your company I was like 5 000 Euros I mean the bureaucracy the notary the lawyer it's not really worth it so you just say no even though it would be great to have family and friends easier participating in their company so that's the idea of what we want to solve and if you now look into F3 I will very quickly goes through the story of the dial for those who don't know it I think many maybe know the story so I will not go into the details but the thought process is important for what Corpus is intending to do so in 2016 slogat actually I've also left Terrace

here he also worked let's lock it back then great to have you here we created the code for the Dao the Dao maybe you know it raised about 11.5 million ether you don't want to think about how much is this in today's value back then it was depending on the price between 150 million and 250 million dollars was the largest crowdfunding ever at the time got a lot of press got a lot of token holders we had about almost 23 500 addresses I don't know how many people are behind the addresses as you know address does not mean one human could be in exchange with lots of humans or one human could have many addresses um so it was fairly distributed

and you know it failed there was a bug and hacker got money then there was a Dao Wars then there was a hard fork and I like this quote you never know how far you can go until if you've gone too far yes Mr Dao we've gone a bit too far but it was a really great lesson for not just us but for many in the community we learned a lot of things I don't want to talk about the learnings in terms of smart contract security or all those kinds of things I want to focus on one particular learning which about tokens the tokens walk this is I think one of the main learnings from The Tao yes many people can invest using a blockchain using digital currencies such as ether or also other tokens and you saw this

Bitcoin ethereum we start with the Dao after that a lot of icos came a lot of them scare me but okay they technically worked very well it was easy to just raise funds by creating a token and you saw how many billions of dollars were raised with icos then the regulator came and said you cannot do it like this and so then we had the separation between those your tits so-called utility tokens and security tokens utility tokens they just wanted to say well we don't want to do kyc we are just a product but most of them somehow had some tokenomics trying to link the value of the token to the product they are building in some way or another let's say using staking for using the product or and just calling it utility token but was also a little bit

always a bit on the edge so this is the problem strategy told although I think many projects are still great they all want to give you dividends they want to give your shareholder rights but really can't so then you enter security terms and they basically just say we make a token which is security and they have not really taken off if you think about this was 2017-18 everybody thought this is the next big thing in 2018 19 20 21 yes they are security token projects they are somewhat successful but not as close as you saw on the Ico phase what do what I think is their main mistake um watching it over the last years is they try to resemble exactly the same thing as a normal explicit stock is

doing you have option contracts you have those rules you have to assign the contracts readily sign go to notary and then on top of this you get a token but you actually don't need it because you're already using the Legacy system as is fulfilling all your needs and this is just a nice add-on this is like you're going to going here and it's great you're getting a pull-up which is cool it's the add-on but it's not a must-have it's just a nice tool tool which is cool to have and this is like those security tokens nice thing on top of but not the real thing but we know how tokens work and how does fundraising work so another another lesson just very shortly about Dow governance there's no one-size-fits at all not everything has

to be a dow I think a dow is really good for public goods for maintenance of products and for Community ownership a dow is not particularly good for product development and finding product Market fit so in hindsight we try to create it slog it and use n with a Dao but maybe it wouldn't have worked just because Styles have really messy governance as you all see there's many doubts out there and it's messy governance kind of is a trade-off for stability of a public good so as we know in our German history dictatorship can lead to really really really bad things although it's effectively you can make quick decisions and democracy leads to not the very best outcome but they also prevent divorce

and this is kind of a little bit what a tower is sometimes there's some good ones and some bad ones but so traditional company structures are not all bad so having a CEO and leading for pre-going pop click for product development and pre-product Market fit I think this is not a bad model but how can we still have tokenization in those shares and don't suffer from the same problems as those security talks so as a conclusion talks are good for ownership management but do not put new wine and old wine skins some things we already know so don't use those tokens for traditional Legacy assistance as you already know like the stock market and all those kinds of things so I also like this quote a lot by Buckminster Fuller I always print this

presentation when I speak about ethereum because it's the same principle behind it he said you never change things by fighting the existing reality to change something build a new model that makes the existing model Obsolete and with this thinking how can we now go into let's say more hierarchical structure more like gmbh that's where we are coming from so I try to build a new model as it's supposed to be this is not a new model and sense of like everything is new it's actually things which already work if you know token based ownership works that's clear so you get access to D5 products so I want your team B8 shares tokenized using on traded on uni Swap and getting liquidities on maybe on other and you have programmable Equity where you can do all sorts of fun

stuff then I want investing at a fixed price like price rounds economics like most of those icos I hate convertible notes for so many reasons they are non-dilutive which doesn't really make sense they often have a lot of preference rights for different investors and they have even downside protection meaning if your product goes down or your value of the company might go down or your next turning round is just a lower valuation investors lose nothing with a convertible node it just get twice as many shares and there are so many downsides for Founders if it's convertible nodes and those preference rights make the non-fungible because every investor is getting different rights you cannot trade them the same and if you look at security token standards such as

eip1400 you have basically in your cap table tokens type A type B type c type D they're not really fungible because everybody's having different rights so you just want to get away with all this mess make it as simple as the Dao and many many icos have been and put this into a um into gmbh do you have an invest Now button you click it transfers on crypto and you have some shares so how does it work a little bit under the hood so first of all you might ask why gmbh I mean why not just making a real dial with no legal structure at all you can still do this and dials are still great but sometimes you want limited liability that's one of the main reasons why you

want to go with the gmbh or let's say LLC install depending on where you live you want to have a push to a legacy system like when you do employment contracts they have certain rights you want to have certain protections by the laws so most of for the gmph or LLC is giving you is actually rights and protections so it's nothing bad so you want to have those kinds of things so what is the link a very simple token which can be converted to tmbh shares and the problem is we don't have access to the hundreds regular stuff so this is the public registry so that's why we have to treat it a bit differently think about the handles register like the layer one if you think about layer twos and layer 1 and ethereum something we don't have direct access to but yes we

can settle at a notary and now we create a layer 2 which makes the existing system obsolete to use this quote and there we have a token which represents this Gene BHS by giving you exactly the same rights it's pretty tradable tradable you can do whatever you want with it and if needed you settle on layer one which is so we want to create a layer 2 of tokens for private companies that's gmph gbhs which is like a meta system in its own but importantly is how do you link the token to the gmbh shares so here's the legal solution we have worked over one year spent tons of money with lawyers to come up with this conclusion

so first before I present you the resolution most lawyers would say the following create a company somewhere else Cayman Islands Singapore on one of those places transfer your ownership of those team BHS there and then just trade the shares of this company way easier but what what would it mean for our users so if a normal company like a normal chain agent chimney comes to us the first thing we say to them please incorporate somewhere else which is a huge huge hassle if you want to have like fundraising and gmbh and crowdfunding and you always say just go somewhere else you have to make a text declaration there move all your shares there it doesn't look good so you want it to stay in Germany and have a German solution and there's something so we have currently two contracts an

investment contract in our slope in the future I really really hope you all need a second and I I will explain a second how this works currently the investment contract is needed maybe not in the future so the investment contract is easy for the first issuance or first emission of the tokens you have a simple contract saying you as the owner of the token has rights such as this is called in Germany and and English would say profit participation right so this includes if Dividends are paid out or profit distribution you get your share if your company is liquidated you get your share and most importantly you have always the right to convert this tone to an actually gmph share and the exchange for your profit participation rights

this means you can always go to the company say you have to go to the notary notary with me and give me an extra share in exchange for this token so and this is the investment contract for the first commission but the second part is actually way way cooler and nicer you can do this in Germany it's called in our syllable the best English translation which doesn't really fit as an award this means I'm saying whoever does a certain action gets a certain price so you could say if I promised the world in an hour slowborn that we ever don't know it jumps from 100 meter Tower I will give thousand dollar if you prove to me that you did this I have to give you a thousand dollars you could sue me for not giving you the money because this was a public public outlooking a

public award I promised for this kind of action the nice thing with this is it's not a one-on-one contract it's a contract between me and the world I promise this to absolutely everybody and we're using the same now for this tokenization we are saying I the gmbh promised to the world if you give me this kind of token with this ethereum address I promise you to give you a new team BH share if you go to notary and you get one share that's my promise and it's legally binding meaning you can sue me if I would not do this the nice thing with this is you don't even need to sign a contract you can just have this contact token you can do whatever you want with this and as soon as you come to me there's like a settlement layer one I have to give you those rights I have to

give you a company share and with this we have created a layer 2 of tokens so this is currently uh we are contacting the bathroom also the German Finance armed to get disapproved this just basically asking them if we can use it as we want and this is basically just a security layer if this would not hold this always holds you can always have a one-on-one contract so you can even just do both and you're absolutely secure that this works the problem with this one why many company companies don't really trust on this is if you have a one-on-one contract the tokens get traded a lot you have to technically prove the whole chain of transactions not just on chain meaning this person has transfer the right so this person he transferred the

right to this person he to this if one guy comes to say well this was my eight-year-old daughter I didn't do this then you have a problem that he technically have to has the rights even though he doesn't have the tokens anymore and for this we have the out sloping as basically also a security layer it doesn't matter if you only give the rights to those who have a token no matter how it was transferred because this is the award the action of sending us the token no matter what happened with the token previously we really do not care this action of sending us a token is rewarded with actually company shares so this is the the legal solution behind us the talk or the economics are ex simply like we have in traditional Silicon Valley based companies it's similar to a price round every in this investment

dilutes the previous owners meaning you can have a private invitation to someone to invest at a certain valuation and then those talks are created diluting the others you can have employee participation saying you're vesting and the main thing happens as it is with strong so don't invest you don't just create like 1000 tokens for you which you get over four years you create an investment contract on an investing contract on a website you're minting them as you go you never have to give those back when you leave the company you just didn't mint them at all so it's much easier economics and you can do continuous fundraising not just C Series ABCD you can have this invest Now button on your website and continue to fundraise by just setting a max amount

of tokens you're willing to sell and the price per token which effectively gives you your market cap so with this you can always fundraise as you want you can stop the fundraise you can change the price eyes and then the other ones can decide if they want to agree to this or not so it's a very very simple mechanism the ones I always want to have when I build its locket or any company that's how I want to fundraise and that's how I want to invest so it's as simple as it can gets no preference rights it's not allowed to have any rights between different investors because just one toe needs to be fungible there's no dilution Protection full unchain transparency and the token is technically tradable on uni swap or anywhere else so when I'm saying this there's of course one little trade-off yes there are legal

restrictions there is a buffer and this is considered as a security meaning you have to do Key by C and the technically you have to do something which is called Prospect flesh in Germany but actually a lot of exemption to this perspective meaning if it's not a public offer but just private investment invites you don't need to register if you make an offer below 100 000 you can do this if you make an offer between hundred thousand eight million you can do this using a Vib which is in German word popular information's plot which is not too hard to get it takes about one week to get this a buff in then it doesn't cost too much money so it's not a big big hurdle not like making actually Prospect if you offer it to only to accredited investors okay over to less than 150

people per your member states okay if you have a minimal price of hundred thousand euro per investor you're okay and this is also a nice one nice German road if you do this which we'll try to to become and then you can actually offer up to 5 million in crowdfunding without registering this above him because this Schwab financing slicer has to take care that not that you are not Fatherland and you know that you're not basically not a scam so and with this on your platform we can offer you that you raise money up to 5 million without register with the buffing once we have this so then we can actually do this so and this is the goal of this platform that

you make it very very easy for team BHS to raise money to crowdfund to give it to family and friends family and friends rounds to employee participation and so on so and this is the last slide he's nicely said would be cool if you could put nuns in equity in the uni swap is outgoing to jail that's basically what we're trying to accomplish with scopos that you can put this on uni Swap and yes people have the qac on our platform that's the regulation but other than this you're pretty free to have more or less the exact economics than most token models okay that's it thank you very much thank you Kristoff questions thank you very much so quick question

some of those limitations as you uh named them are I think they're for purpose right if you look at shareholder agreements like people don't necessarily want tokens or shares to be freely transferable uh that I can send them to anyone like Founders want their investors to actually hold the assets um so that not someone else that I don't know is eligible to determine who I hire or who I don't hire so how do you think about managing that in in an on-chain World good question so this is kind of like a next layer let's say you want to have investors not selling those tokens what you do is you issue them through another smart contract where they have to hold them for let's say two years for example but that's not like this I just explained you the base layer how the

token works and employee part of the participation investing is almost exactly what you described if they make a doubt they have a nice resting contract it's the one we are using because it's audited and used by many so in there you can some say something like you're investing with a manager can quit investing or you're actually just getting a delayed payout of the toggles you'll get nothing for four years and then you get everything at once so this can be happened with the tokens basically putting them somewhere like this and that's what I mean there's programmable Equity you can now put those smart contracts out there and put those tokens in there with the conditions you want um

I'm curious how you see other legal Vehicles like you know are we going to see GMB has as a as a like a a good regulatory environment for these kinds of vehicles or maybe like the UK or llc's um have you started with gbh maybe because we're here from Germany but we my target market in the beginning is Europe so I want to go but once this works we will be launching this year I want to go to the other European countries and look if this league is set up or something like it can be done there as well with the goal that the economics behind a corpus issue token is always exactly the same no matter if you

are friends French company or UK company or somewhere else so that's basically the next step eventually globally but as I said in the US the market is working okay meaning it's not 10x better but for Europe This is like 100x better so we are starting with the European market because it's so scattered but if this takes off of course we'll just expand to other legislations thank you very interesting um my my question is like how do you view value um you know from business agents and stuff because obviously business agencies yes they also provide some value and if you invest 50 000 I work

with the company daily or you know make them intros to customers and stuff then obviously I expect discount then some guy who I meet on a party and he gives me 1 000 Euros right right so in the end like how do you think about that and how do you think about incorporating this into your kind of venture already in there like currently there are two ways of fundraising it's called the public ground well I called it the smart contract is called continuous fundraising that's where it just set the parameters like Max Min how many and so on everybody can go in there and you can issue private invitations where you say this is the price at which you only this address can take this offer for this amount of time let's say it's valid for two months and you can take it because these may be aware special investors to

search you keepings in more than money it brings the network experience and so on so you can make those private Investments and also then at different valuations you can take the good thing is in the end it's public so if you're you're using um they create to op code DVM so you don't see this invite person invite but once he's taking it he has to deploy it on chain and taking the invite and like sending usdc and getting those tokens so it's once it's taking its public for everybody to see so if you're giving him a 90 discount you will get a lot of negative feedback from your community so it's at least it's completely public what you're doing