AI-Assisted Development and Web3 Legal Structures (Combined Recording)

Transcript

Waiting for my queue. Good morning.

Our first speaker of today is a person that is committed to help others come into emerging technology web 3 blockchain. He is going to talk to us about AIdriven development. The head ecosystem of dojo coding. It's a person that is committed to build community and so they have they have about 1,800 developers in their community and they work on open-source teams for new technology. We going to welcome to the stage Alfredo Bonia, head of ecosystem of dojo coding. There we go. Thank you very

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speaker. It's uh they come to talk to us about I guess legal terms in in emerging technologies. We're going to be accompanied now by Rebecca Munos. She's a lawyer at Panama Pac uh Pacifica Legal and Dr. Edgar Young with 10 years of experience. He's a partner at Pacifica Legal. He has he holds a PhD or hope I'm saying this right university at Moscow.

Yep. It's uh he's a lawyer. Both of them are lawyers but are disruptors as well. They are champions for new technology for web 3 and they're going to talk to us about I guess corporate structure for this new companies in these new emerging technologies. So welcome to the stage Dr. Eat Young and Reca Munos. This way big round of applause. Come on guys, let's feel the energy in the room. Is it clicker?

Hello everyone. So my name is Edgar. I'm here with my partner Teresa. We are both from Pacific Legal. Uh a Panameanian based law firm. Uh if you can talk a bit about us and what we do. Yeah. Well, we are a Panameanian law firm. We have been together since 2022. And basically we work with founders around the world incorporating corporations, private interest foundations and all that is required for yeah basically just formalizing your business uh taking advantage of Panameanian you know sectors.

Yeah. So we have been pretty active in the crypto space in Panama. Up to date we have incorporated around 250 entities uh between foundations and companies. a very mixed uh sort of clients. So anything from L1, L2s, top five uh centralized uh exchanges, top five decentralized exchanges, um bar and lending protocols, perpetual trading platforms and so on. So we have a very diverse set of clients and expertise in in this topic.

Um, so I wanted to start this talk with a tweet that I like from Camila McFarland which stated that is still crazy that founders in crypto not only have to be visionaries but they also have to deal with setting up uh capital markets experts doing the structure for the token generation event uh dealing with market makers and navigating a change listing. So imagine a pre um product market fit um seed stage founder that they have to do their own IPO without any help. So no Goldman Sachs, no no one to help in the first six months. So this is what we're dealing with in

crypto. Um yeah. So so if you want to talk a bit about the uh the stages of launching a token. So it is really a complex uh structure and founders really need to do a lot of a lot of things. So there are a lot of moving pieces when you are doing a token launch or a TGE the token generation event. So the first stage is of of course you have to engage a council. So um recommended to have to engage someone that have done done that seen that and have experience in that top and in that topic whether it's legal or if it's like uh doing your tokconomics your your token structuring uh then you have you want to set up um a

corporate structure and these are typically done offshore very popular are Cayman BBI and Panama of course you can also explore some other jurisdictions like Duna in in the or you can also do a regulated token launch from UAE. But let's say the the gold standard is still to go offshore where Panama um takes an important role. Then you you want to have your token structuring. So then you are talking about uh valuation uh choosing your token allocation and distribution changes liquidity wallets and so on. Then it's the token generation event. Here you are thinking about minting of tokens, distributions

to investors, liquidity providers and so on. And then after the fact after the token it's launched you want to have a a talk about governance and token management. So you have platforms like toku where you have these possibilities of managing uh your token. So there is a lot of intersections between legal and crypto uh to anything from corporate structuring um setting up the fundraising terms, terms of use, privacy policy and so on. A lot of regulatory questions. So you want to issue these tokens in a legal way. A lot of founders they simply say hey I don't want to go to jail. So it's a good

framework to think of and Panama allows you to do that. So you can perfectly issue trade airdrop a token without um the necessity of being regulated. Maybe just to add some examples on this part. Uh we know that when you're starting you know a project you're excited you want to raise funds so on but then you have the other part after that for example the terms and conditions uh the privacy policy the jurisdiction that will rule the situation that are happening if something goes wrong. Uh these are key details that needs be view and preferably with a legal team in order for you to have something established something you know based there and just

be able to to be aware of what to do when things go wrong. Right? So here we are only going to talk about the first two. So how to structure uh a co how to structure a corporate structure and really I want to portray on the why to structure it. why to have a corporate structure in place and then how to fund raise for these type of web three um projects. So let's talk first about the first part of fundraising. So also to give you a bit of context the evolution of u fundraising in crypto have changed throughout the years. We have seen in 2017 a lot of ICOs where this is pretty much open to everyone to participate in the token. Then it has evolved through

the time. you have now seen more staff and safe plus equity arrangements. Um yes. So normally before you used to have um founders creating a token and then um delivering one product based on that token. The problem with that was that a lot of the time um that the the the that product that project wouldn't deliver and then the token would go to zero. So founders now have getting smarter and changed things a bit so that now they are creating a project first then validated that project through the

community and then issuing a token. When you are issuing a token then that typically entails some type of fundraising that can be either from angel preede uh a series seed or uh your series A for larger projects. Okay. So how do we structure these things? Uh typically you will find uh different options. So it can be a a public sale or ICO. It can be through a simple agreement of future tokens or it can be some type of equity plus tokens. It's normally through a safe um plus a token warrant or a site letter. Okay. So, if you're talking

about an ICO, this is pretty much open to everyone to participate in. You typically have a set price or a tier price where you uh incentivize earlier investors into the project. But pretty much it's it's open to everyone. Everyone has the same conditions. Um the problem with that was that it got a lot of scrutiny from regulators around 2017 and 2018. So then they started changed more to SAF and safe plus token warrants. If you are talking about SAF, okay, what is a SAF? A a SAF is a legal agreement where you your company is agreeing to deliver tokens in the future

for funds now. So you're receiving funds from investors and you're saying to that investor, I'm going to deliver token to you in XYC uh you know six months for example. Um then you you're Yeah. So I I was as I was saying um the problem with with a lot of the ICOs was that they got a lot of scrutiny from regulators specifically in the US. So you have a lot of the ICOs to be considered a regulated activity as as stated by this most ICOs are considered to be offerings of securities.

um and you have a lot of cases uh pursued by the SDC against these type of projects. So if you're talking about safe, these are pretty um standard uh agreements. So you are either talking about the one Y combinator safe, either a series seat safe or the NVAC uh safe. So these are uh pretty wellestablished agreements and then you can have either a token warrant or a side letter which they are very minimum differences between the the two of them. Uh I think that we can skip that because it's kind of quite specific. Um but generally speaking the token warrant

it's more formal and procedural while the the side letter it's more flexible and less formal. Um okay so when to do one or the other one. So when to do a saft and when to do a token warrant. So if you have already a specific um uh tokconomics token allocation um uh token valuation then you can go straight through a saft. If on the opposite side you are not clear and or or or you want to keep uh flexible things in terms of your token your tokconomics token valuation and price of the token then you can go ahead and have um safe plus a token

warrant. Okay. So how to structure uh this type of um corporate structure for web 3 projects. So you would typically have a three set of groups. We we like to divide them into a development entity, a token issuer group and then a platform or front end. Yes. So basically in Panama what we can offer is um anonyima and LLC known in other jurisdictions and yeah Panama what we have is the benefits of tax neutrality. We don't have uh crypto regulation or vast regulation. So is interested for for founders all over the

world. Uh we can also uh use uh private interest foundation also for protecting the assets if that is the case and well basically also the platform the the front end everything related with the uh different agreements terms and conditions privacy policy and so on. Okay. So you typically have um let's so let's say that you want to issue a token right so how do you structure this you typically have one development entity it is a standalone entity meaning that it doesn't have a connection by way of ownership to the offshore group and then you you would

typically do the development of that platform or of that token through the development entity. So it's a very low uh risk and you we typically recommend to have that in a tax neutral jurisdiction or a jurisdiction closer to the founders. Then you have a foundation. The foundation it's aka ownerless meaning that it doesn't have direct shareholders or owners. So it also benefits for this type of web 3 projects that are pursuing decentralization. So it is a standalone entity and has it its legal personality meaning that it can sue and be sued which is a very good benefit. It also

functions as an asset and liability protection. So between you the founder and a high risk activity as it is a token launch or a crypto platform you want to create a buffer between you and these type of high-risk activities. It also creates um asset protection so that the the assets of that foundation cannot be seized uh by way of law. Um the entity itself it's also a dedicated entity to the purpose of that foundation. In this case all the tokens and the proceed of the sales of the tok of those tokens will be dedicated to the object of that foundation. that can be

for example pursuing the development of a certain blockchain activity or project. The foundation is also typically the one that holds the treasury that interacts with the DA if there's any. And um and that's kind of the role. It's kind of the entity that it's is steering the wheels of of that token generation event. Then you have a token seller. uh typically it can be from BBI or Panama which is the entity that it's uh doing the signing of the SAF or or or different investment agreements. Okay. So other considerations to be made. Uh do you

want to take this? Okay. So a few things to consider. Where are you offering the tokens or services? It's a very important question. So if you are talking about the US for example, you want to avoid using Taft because it would be considered I mean things are changing but most of the time would be considered a regulated activity. If you are talking about about Europe then you need to consider things like reverse solicitation principle. Uh the other thing to consider is what is the nationality and most importantly the residence of the founder. This is more important for tax reasons.

The other thing is can the take the token holders be a general partnership and therefore be considered jointly and severally uh liable. The qu the answer to that question is yes and therefore one of the reasons why to to to have these activities wrapped in in a legal entity. So let's say why do I need a company or a foundation right you can have uh an issuance of token but then each token holder will be liable for other token holders activities right um then you have a tax consideration so what type of um what is the

characterization of the legal entity from outsiders perspective um it can be also So um question about nominee directors so what is the management of that entity to still consider tax uh friendly there's also the question about front end and protocol separation geoencing BPN blocking we typically recommend not to offer these services locally also for tax benefits um yeah So this is also related to the question of general partnerships. We have seen some cases in SAS against Lido

this this uh I think last year right uh where the token the the unincorporated entity was considered to be a general partnership and therefore you have several liability uh between token holders. There were previous cases also in this line with the uki dao and the saruni the saruni case also along this line. Yeah. So okay the big question why consider Panama in this uh scenario?

Yeah. So currently in Panama there is no asset regulation or crypto regulation. So it's open to incorporate different kinds of entities. Also there is no license required. One one of the the most frequent questions we get from clients worldwide is what is the license they need to obtain in order to be able to formalize the answer is as of now there is no need to license for crypto or for token issues. Then the setup and the maintenance is pretty affordable compared to other jurisdictions such as Cayman, such as Singapore, such as Delaware. So that's one of the other benefits. Uh the

constitution of entities in Panama is interesting. There is also risk mitigation because once you have uh the idea the project in one uh entity, one private interest foundation or corporation then the the risk goes to the entity and not to you as a person as a natural person. In Panama, there is also no uh there the entities do not need to have uh public the ultimate beneficial owners information.

Nonetheless, in Panama, we have a superintendency that requires this information to be updated in a private platform, not published. It's not available to um in Parma. We also offer foundations which is pretty interesting and many people do not know about it and foundations can work as Dow rappers. It can also work for treasury for talking governance among others and it's really interesting because some clients come thinking maybe on a trust and then they found out that they can use private interest foundations Panama and it's way more affordable and it's also easier to to incorporate. Then as we know in

Panama we have uh the territoriality uh principle in in taxes. So taxes that are not activities sorry that are not implemented in Panama are not required to pay taxes. So it's interesting because that will be uh no corporate income tax on on foreign source incomes. And then also one of the benefits of Panama is the the noneconomic substant regime which is required in other jurisdictions such as Skyman and other Korean options. Okay, that's it. Thank you very much.

Thank you. All right. Um, so mostly on the last slide, uh, I understand that Panama is like a a pretty good place to do business mostly if you are in this industry because Panama becomes kind of a hub where things doesn't happen in here.

that you can like formulate everything and and regulate at least structure the entity here. Uh doesn't matter if it if it works in in a different country, right? So my question is is this becoming a boom in the in in legal entities? Is there many legal entities doing the same? There is a lot of firms doing the same that that you do or this is something new that only you and a few players are playing right now. I start. So yeah, basically we have seen that in Panama more law firms, traditional law firms are doing this. Uh maybe the difference of them with us is that this is our our main activity. We

work for crypto projects uh providing uh law services. So yeah, it's something that is indeed blooming. Uh it's it's interesting because we have I don't know maybe three years and we have uh developed more than 250 entities focused directly on crypto activity including corporations and private. Yeah. Yeah. If I could add to this in my opinion I think Panama got popularity uh after sushi swap in incorporation in Panama I think it was in 2021 or 22. Yeah 2023. So I think after 2022 23 Panama increasingly became more popular.

I would say in the offshore scenario it is in the top three jurisdictions that you are that you want to look into it. I think each jurisdiction has its own benefits and cons. Um for example if you want to issue a token in Cayman that would be a regulated activity. So you would need uh you know uh approval from SEMA from um Cayman to be able to to issue that token. That's why they do normally a foundation with a subsidiary corp in BBI because even though there's a BS regulation BBI you can still issue that token without being regulated. In Panama you have kind of the benefit of both. So you do have foundations that

you will find in Cayman and you can also issue a token without the need to be licensed or subject to um you know registration regulated activities. Um yeah so so it it's quite popular um to set up this type of structure and using Panama either to the whole or part of the business. Another example is for example deploying a protocol in C and BBI might also be considered a regulated activity especially consider what is the purpose of that of that protocol. So you can have for example one foundation in in Cayman

token issue and BBI and then the protocol deployer in Pana for example. Um yeah. Uh, I'm going to cut on you, man. Right. Yeah. Uh, I have two one question just came up right now when you were talking, so I'll I'll do it first and then the other one. Uh, so what about the superintendencia, the no regular? Is these guys getting into any of this or is it like the wild west still?

Yeah. So for the activities of crypto it it is still a nonregulated activity meaning uh so in general there's no vast regulation there's no crypto regulation in Panama you can issue trade uh token or in be engaged in cryptoreated activities like commercialize right yes commercialize commercialize openly advertise so if let's say you are in a change you are not subject to AML regulation We have even issued a request uh to the financial intelligence unit saying, "Hey, we have an exchange here. They want to to to to have some type of voluntary submission of STRs of

suspicious transaction report. How do they deal with this? Or for how long do So, we don't have the people for that. Sorry. Yeah. So, for how long can we kept the the funds uh you know, frozen, right? And the their answer from them was hey this is not yet in place in law. You are not a um reporting entity. Uh so you not only have the obligation but you cannot even actually do voluntary uh reports. So that is on the crypto side. So you can you don't have to be subject to AML regulations. You don't have a supervisory like a superintendencia.

However, for law firms that are creating those entities, we law firms are regulated uh reporting entity uh reporting activities, right? So when we create that uh corporation or foundation, we need to have certain data and documents from your site, right? So basic KYC info it is your passport, second ID, um utility bill as proof of address and some considerations. So yeah when you are creating that entity you you do need to have some KYC um in place but those um projects that are running the exchange or your token sale do not have

to comply with AML regulations. However, money laundering is still illegal. So, we do recommend having some type of KYC AML measures in place for your principle of, you know, cover your ass principle, but not by because it's mandatory by law. Say, say ya. Now, you can coin that say c ya. C ya. Yeah. So, so yeah, my other question really quickly that you really you just talked about it like but you said that I have my tax thing would be my residency and because there's a lot of people living in Panama right now but they the company is in BB British Village whatever because of some reason that I don't know

what the reason is exactly but but that that will be to have their their own personal taxes because they're not they don't have to pay taxes because it's the the income is coming from another country. But why do they put the company in an why don't they do the company here and if they're living here because you're saying that both things would be taken into account. I I had understood that only the only thing that mattered was where the company was. Uh yes. So there's a lot of moving pieces when it comes to taxation. Um so but essentially in Panama it is territorial ter territoriality based meaning if you're offering tokens or services outside of Panama that is non- taxable income. If you're offering these

services within the terri territory of Panama then it would be taxable as any other local. It doesn't matter if you're selling it abroad. It's where the buyer is, not the seller. Yeah, it's where where you're offering that uh services. So if they are let's

say Panameanian residents whether individual or companies then that would be more categorized as local even though like to be honest in the ministry of of economy there's not a lot of guidelines as to how to tax crypto if you're selling to a local company that therefore we're not paying at least uh you know uh capital gains on the sale of of those tokens. If you are distributing then capital through dividends then there's another you know picture to that where is that um you know shareholder going and if there is a double taxation treaty between them um yeah but also it depends also where the founder is located right

so let's say that you are in Portugal and you are creating a company here in Panama then you can have like a services agreement between uh these two can be considered a a rel a related entity Um if you have US founders also there's then you don't not only need to look into your tax resident but just being a US person you have to be you know you have to comply with global taxation. So there's a lot of moving pieces when it comes to taxation. Uh but yeah that was great. That was the best summary I've ever heard of the structuring process. Um, and as a comment, I feel like I have a Cayman

foundation. The governance there is great, but this weird dependence they have on BVI and not having any economic substance in the Cayman, it's a lot of rules. And it sounds like unifying that in Panama is is a good idea. What are my governance options for a foundation the foundation structure in Panama? like as a practical matter, how is it governed? I think it it really depends on on how how do you want to structure it, right? Um if that governance through a DAO or not, if that foundation really uh wrapping that DA or receiving instructions from the Dow which is an

unincorporated entity. Uh what are the rights of the token holders? Right. Um I think Well, we actually wrote an agreement with Odico. You might know those guys that that applies the the voting DAO governance to the foundation directors. Is that an option? And it's like it would depend because like you would also there's like a late tendency that you don't actually want to have the token holders as part of the foundation or you don't want to give them rights directly in the foundation because like that would be an issue. So you would rather have like just like committees like grab in other entities but keep the

management of the foundation separate. For example, you can't have like the the supervisor and that will be like considered the UBO for the company. you would rather have that instead of having the token holders or the members of the DAO um just like be held as potential liable parties in case something goes wrong. That's like the latest trend on that aspect. Like before you would like have like the beneficiaries or like the token holders as beneficiaries like you're not seeing that that much lately after like Ukidal and other like cases. Good point. Although, as you've probably seen, when these foundations become successful, they become a negative force because the people that manage the

foundation just sit on the money and stop doing anything. Like like that's like what he was like mentioning actually like they were mentioning that you will like divide and like divide the parts of the DAO like there's this concept called like DAO adjustment entities or Borgs. Um and what they do is like you separate the treasury management, you'll separate the token issuance, you'll separate the operations, you'll separate the front end and you have like different entities that control different situations. So like you'll like mitigate those risks and that want a certain person who actually manages the whole project will kind of like get into it. So like it would depend like will be like a case by case scenario. But yeah, like I understand your point that there's

always like a core team that will like have that management or ultimate like management of like the multisc or something, but that can be mitigated like with this like structures like onchain and offchain you want to like replicate where you have like unchained into this entities in the bylaws or similar. Yeah, I I think like a practical example would be maker where there was the purpose of decentralization through that foundation. Um, yeah, but Maker Dow is a great example of really screwed up governance.

Yes. Yeah. So, their plan was let's create a foundation. Let's try to decentralize as much as possible. Once we are sufficiently decentralized, then we will dissolve that foundation which they did I think in 2021. And then they decided to wrap that again because of the general partnership question. So yeah, you can see why this is an interesting issue. Yes. because direct Dow control prevents the problem that's

happened with successful blockchains where the directors just sit on the money and pay themselves big salaries. Um, you have these issues that you get with Maker Dow where the founder takes control and does crazy stuff um and destroys value, but you also need founder guidance as she was saying to to really do anything new. So, it's an interesting question. It sounds like you guys are ready to get into it. Yeah, I think it has benefits for for both. If you have more a centralized approach through that foundation, I think that the decision- making at least at the very beginning, it's more beneficial.

So, you want to keep it flexible in terms of the purpose, in terms of management, uh because it also can slow things down. If you are doing a DA right the way and let's say giving away all decision making it can also become a mess because like there's always like a protocol that is actually like generating the fees or like having this part of like the big assets in the treasury and that's generally like part of like the assets that the VC that raise for like the staff for like the part of the equity of the company and the core team founders mostly keep and then there are like the parts that you

actually want to delegate the Dow for example for the grants distribution of builders so like you like only delegate certain aspects of that management to the DA side or to the governance site like I do think there's like new trend in the ones you're keeping like that very separate you maybe you have a foundation for the DAO itself but like you also have an oops go and you also have another front-end entity for the fees and for the actual management of the protocol. So like I do do completely see those as like two different aspects and then also the other question is okay what is the alternative right? So let's say if you're not doing any entity you're an unincorporated

association any token holder will be responsible and liable for the actions of other token holders. So this is not good. uh then if you are doing it only through a company then the question is you have a fiduciary duty to your shareholders. So how do you manage that fiduciary duty to the shareholders versus the token holders right? So, so this is a big question that is it is not a perfect solution but I think the having a foundation in place would benefit uh for for for these type of things and there's also like a trend I've seen we work a lot with like lawyers from other jurisdictions and like before like those lawyers that were

like oh no like I'll just like drop out everything of the DA that will be like considered high risk and just keep like the DA unwrapped after like recent cases like the lighter one they're like no Like we actually because like when they responded Lido like actually created an entity that will grab the DAO. So like they responded true a different entity they created for that purposes and for that and other purposes they're like no like we actually need an entity for this purpose in particular. So like that's a new thing trend we've seen a lot. Yeah. Even for example with a token holder let's say that you own you hold the token you didn't do any decision you didn't delegate any vote the SEC take on that was that you made a decision but no

but no by not voting so even like uh like like by default yeah like by default you made a decision you still have the effective control of the token so like when you delegate it or not it's sort of like that was like what I was talking the other day about like the risks on delegation like there risk on both parts but if you're holding a token and then maybe in the bylaws it says like oh if all token holders are like part of this comm community or something like that you could like be held liable at certain point that's why you want to like segregate all the governance part from the actual protocol that's like my criteria Yeah. Yeah. And also a lot of these

cases were in the past administration, right? 2017 18 until last year uh where the SEC was very against crypton. So I think this this week the there's a new SEC chairman I think Paul Atkins so with the new administration who knows may maybe there's not a a need to be that you know cautious about it. I think that in the at the SEC that things are divided but it all it also it's very Yeah.

Yeah. Great. Let's give a big round of applause to Edar and Rebecca. Thank you guys. This I think this more than a presentation. It also deserves a panel conversation that we can expand a little bit. So, thank you again. Swag. You can at the back of the room there's some coffee, very tasty coffee and some uh other souvenirs. We going to take a little break now and we be back here in about 15 minutes. So, don't go too far. Grab your coffee. Uh

see you soon.