Salman Banaei: The Regulatory Unlock in CLARITY Nobody's Talking About (New Update)

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The whole token equity dynamic split was a result of the rule making around the obviously fraudulent 2017 ICO craze that then led to this safe simple agreement for future equity plus token warrant dynamic for all venture capitalists to invest in the space. And now we're trying to like go get away from that because, you know, people are realizing that that they want to invest in a in a I don't know a more investable asset in the space. And so hopefully this contributes to that the the removal of some of that structure, you know, or at least the eventual removal of it.

And a bit more of like a a equity-like token structure in the future for investors to have in the space. I think that's like something that's plaguing the space a bit and so hoping that that that that would kind of contribute to the reverse of the Gensler era that caused this kind of token capital formation structure as the only kind of go-to accreditation things. Is there anything on accredited investor rules in the US things of that nature in this bill specifically for crypto or is that I think that's that's kind of something entirely separate.

>> Yeah, that's that's not really a focus of this bill. You know, it it does provide access to early stage projects in a way that or at least gives projects the the opportunity to you know, market their tokens early to the public. So in in that sense you know, by eliminating the complete reliance on VCs for early capital. It it helps in that direction. Another thing I'll point out and this this actually is is not just in the bill but this is in in recent guidance but um the the recent SEC CFTC guidance on crypto assets as well as the the clarity bill which it tracks pretty closely Um, it clear that

as long as the tokenomics of a of a uh token are derived from the operation of the protocol um, and you know, it's earning fees subject to some uh hard-coded algorithm that can only be changed um, by a DAO vote, then that token can retain its uh secure its uh non-security or digital commodity status um, or obtain it. So, um that you know, pathway to monetizing tokens or embedding um, you know, uh revenue into the into the token is something that this bill um, you know, actively encourages as does the the recent guidance.

So, I think uh I think that will be uh an unlock as well because there were there were concerns, you know, from my earlier times in in crypto that um, any type of revenue sharing uh type functionality in a token um, you know, might make the token a security. That's pretty clearly out as long as those revenues are driven by uh protocol operations and not by uh you know, central management team. >> Yeah, and programming those revenue uh uh mechanisms into the protocol itself provides investors a higher degree of assurance that they will persist and sustain rather than like you said, the management team can just change their mind. If it's programmed in, you know,

there is investor assurances there. >> Does it say like actual like DAO like DAO governance in the text? >> And is there is there some sort of like minimum threshold to the amount of involvement that a community must have? I mean, recently there was I think it was on I for I don't want to misquote the the name, but there was like a one-of-one uh vote on a DAO that drained like 12 million >> down or something. Yeah, yeah. >> Yeah, was there any sort of like sufficient level of decentralization or or participants that are required in this in this vote? >> Yeah, so there are there are restrictions on the concentration of voting voting rights that would you know, once you cross that threshold then the the the project is is not sufficiently

decentralized or in the language of the SEC CFTC guidance. I think it's a a functional blockchain network is the language they use. So there are um it's at this point there are there isn't clarity in terms of when that line is crossed, but it's clear that when there is you know reliance on a central management um team then you're looking at more of a securities type product as opposed to a algorithmic approach to things like revenue sharing with a fallback of a Dow vote provided that that Dow is itself sufficiently decentralized. And the biggest token holders are going to end

up being the VCs and the you know the project the founders and and you know maybe early uh early team members. And the best practice that is permissible under both the legislation as well as the the recent guidance from SEC CFTC is delegating those voting shares to a third party. And so that that can be done or or just locking up the voting power. >> Of like the of like the insiders basically.

>> Right. >> Um so I'm coming coming back to to clarity here for a minute. I mean the chatter online is that this August 7th or maybe August 10th is like the deadline even though you know there's another couple years in this administration and this you know bill could theoretically still pass after the midterms, but people are are saying this August you know 10th 7th it because you know, there's a there's a recess. What Is that truly the timeline here? It's like do or die by, you know, early to mid-August, or is there a chance, you know, recess happens, midterms happen, and this thing, you know, goes through in 2027?

>> Okay. The um yeah, I said 40 50% chance. Um I think if it if it doesn't happen by um you know, uh early to mid-August, and we're we're into the Senate recess, the next window, which is a very small window, is in the lame duck session between the November election and the swearing in of the new Congress. When the new Congress comes in, most likely Democrats will control um the house. Um and they're they're likely going to have another set of priorities other than this legislation. That's that's just the general expectation um from staffers and members that I speak to on both sides.

So, um I think those are the two windows. The the more likely one being between now and August, and then the other one the lame duck. >> Yep. >> Um I I I the the next window after that is probably after the 2028 election. Um where >> election? >> After the 2028 election, I think is is probably the next window after that. >> Wow. And then is that deadline accurate? The 10th to 17th? Is it just in that Is it a hard date? Is it a soft date? >> It's a hard date. That's when um the Senate goes on on recess. And yep. >> Yeah.

>> And then and then after that, there just won't be enough floor time between um you know, I guess it's September and uh November um to to really get this bill through. >> Man, what a bull market catalyst this would be for us if we get this through in August. My goodness. >> Yeah, I mean, one of one of the things I I like to point out is uh title four of the bill, uh specifically section uh 401, which permits banks to use digital asset technology for any function, any financial activity that they engage in. Now, that in and of itself will be a huge unlock.

Um, while the banks could get that kind of guidance, um, from the banking regulators, you know, in the interim, having a statute behind that makes sure that that's future-proof. So, that is is going to be a huge on That in and of itself is going to be, I think, an enormous unlock uh, that this legislation provides. Um, cuz banks don't like to build, you know, they they build on multi-year time horizons. And so, if if if they have any con- significant concern that, hey, a future bank regulator may ask them to wind down their digital assets operations, um, that's going to increase the uh, the the the risk that they assign to these new projects uh, involving digital assets.