The following transcript is taken from The Scoop, The Block's new podcast. Listen below and subscribe to The Scoop on Apple, Spotify, Google Play, Stitcher, or wherever you listen to podcasts. Email feedback to [email protected]. This transcript has been edited for clarity and length.

CoinList president Andy Bromberg has witnessed numerous cycles of the token sale market. From the ICO boom in 2017 to the short-lived STO mania the next year. Today, CoinList continues to offer it's platform for firms to conduct token sales for institutional investors, recently facilitating crypto-project Algorand's $60 million offering -- it was one of the largest in recent memory. Bromberg joined The Scoop to discuss how the surge in bitcoin's price has impacted the broader market for token sales, how CoinList's strategy has changed since 2017 and why the once hyped STO market never took off.

Frank Chaparro Thank you for tuning into the Scoop, the Block's podcast for decision makers and thrill seekers. We have in studio not live as per usual, Andy Bromberg he's the president of CoinList. Andy is here with me alongside my colleague Ryan Todd -- we're going to be diving into a lot of different things here. Andy thanks for joining us.

Andy Bromberg Thanks for having me.

Frank Chaparro It's my pleasure. So as we were talking about before we turned on the mics your company is very interesting in in that it grew out of the ICO wave facilitating file coin which was a massive multi-billion dollar or multi hundred million dollar sale. And that's what you guys are doing now is conducting these token sales so I'd be interested in sort of having you walk us through what it's been like to go from the crazy times of 2017 to now and how that's changed the business?

Andy Bromberg Yeah those times certainly were crazy I think this is just going to be a fact of working in the crypto industry for a long time that it is early, it is cyclical, it is volatile and and we have to run our business with those assumptions that that's going to be true and so what we saw in 2017 when CoinList started was an amazing opportunity. There were all these issuers out there going to run token sales and none of them really had the logistics set up to run a token sale. It turns out there's a whole bunch of things you need to do there from handling compliance so that's the KYC and anti money laundering investor accreditation to transaction processing, actually handling the money coming in to signing documents to managing those investors and understanding what actually is going on with them. It's a lot of infrastructure to build and especially a lot of infrastructure built for a one time event. All of these token issuers were going to run one token sale and then walk away. And so we originally started as a collaboration between protocol labs who built Filecoin and AngelList at the online fundraising platform and they built CoinList. The first version of it just to run the Filecoin token sale and in that process they had that realization that every token issuer was gonna need to do that. And so they said let's spin this out. So we spun out as a new independent entity to do exactly that to provide these services to token issuers. And that's what I and the other founders came in to really start this as a new company. And what we saw right away was this is a great opportunity. Let's seize it. Let's help with the highest quality token sales that we can help with. Let's provide a bunch of services to all these issuers that desperately need services. But let's also not assume that the way the industry is today is the way it's going to be in one month or six months or a year or five years and that I think is a fact of running a crypto business in any way, the industry changes so quickly. Token sales didn't even really exist more than a couple of years ago. So the idea of building a business forever around that seems a little bit silly so we started there and and we've expanded out in terms of products that we offer and the services that we provide. But it's all still around this foundational goal of helping the world's best digital asset companies. And that started with helping them with their capital formation efforts raising money and going through that process. And it's since expanded to help them build communities and manage developers and a whole bunch of other things coming down the pipeline too. But we just really want to set that North Star of helping these digital asset companies succeed. And in 2017 that meant helping them with their fundraising processes and today that means sometimes something very different.

Frank Chaparro Back then though I mean the term that I remember being used was ICO. Did you at that point realize that there was a difference between the companies that you'd be servicing versus you know the classic idea of what an initial coin offering is or an IPO?

Andy Bromberg The terminology I think it's always been a little...

Frank Chaparro I guess the question is when a company comes to you and I guess this is the question and they want to do a token sale through CoinList, how do you determine whether or not it's an ICO which I guess would be a token sale that's an unregistered security or the launch of a project through a token offering like how do you distinguish between those those two things?

Andy Bromberg I think that in terms of terminology it's just so scattered in this space and so a lot of the teams that we've worked with running highly compliant thoughtfully structured token sales have referred to them as ICOs. So for a lot of people the term ICO just means we're offering these tokens and selling them. It's an initial coin offering and maybe it's structured as a SAFT or something else. But ultimately the intention is that the investors are going to get tokens/coins at the end of the process and so they call it an ICO. And that's what a lot of people use that terminology for. We tend to prefer the term token sale. It's just a little bit more generic and speaks to this idea that yeah we're just selling tokens -- this doesn't have some of the connotations of this ICO terminology that often does mean unregistered non exempt securities offers.

Frank Chaparro And when they come to you there are these different methods by which you can do the token sale through a SAFT, through Reg D. I mean we've seen Blockstack recently come out and said they're going to issue tokens via a Reg A. Where does CoinList sit in helping companies decide which regulatory avenue and I wonder if it would be possible for them to launch in a specific region without any U.S. regulatory framework around their sale? Is that part of the process that you guys help?

Andy Bromberg That's right so we we don't actually structure these deals but we have seen a lot of them, thousands of them have come through our doors and have talked to us and we've seen a lot of different ways that these are operated. We can offer advice on what works and what doesn't. We have certainly run sales of SAFTS exempted through Reg D. We have helped with a Reg A offering. We've helped with totally non U.S. offerings, so ones that don't even touch U.S. investors at all or are not a U.S. company. And it's really just a matter of figuring out what process fits that issuers needs the best. Sometimes they just don't care about getting U.S. investors and so they can remove the U.S. from the equation and not worry about some of that. Sometimes they care about getting unaccredited investors in the U.S. and so you are likely to go the Reg A route or the Reg CF route sometimes you want big dollar accredited investors it's the Reg D route that is the right way to go and it's really just a matter of matching needs to the possible processes.

Ryan Todd You mentioned you don't structure the deals yourself who structures them?

Andy Bromberg The issuer always does, working with their legal counsel.

Frank Chaparro So the issuer will structure the deal how they see fit and then you guys provide the platform for that token sale to occur?

Andy Bromberg That's exactly right. We're a technical services platform we help with all those aspects I was mentioning earlier from compliance, to processing the transactions, doing all of that and and we also of course offer advice and informal counsel because we've seen a lot of these deals, we want to help these issuers be successful but you've just got to fall within these these guidelines around what you're actually allowed to do.

Frank Chaparro Because there are certain contexts under which you know providing certain advice might be, broker dealer...

Andy Bromberg That's right, a lot of these assets are treated as securities and the securities industry is highly regulated. You have to be very careful about what exactly you're doing there.

Frank Chaparro That's interesting. I think another thing that people often conflate what you guys do is that you guys are a security token platform. That's something that I think you guys shy away from just because that's not necessarily what some of these deals could be. And again back to your point that you want to provide the broader umbrella of what these might be designated as. We talked about security tokens before we jumped on. My impression is you know it's not 2018 where it was the big buzz word everyone was thinking about how we could tokenize everything. Does that, folks who wanted to tokenize real estate or tokenize different assets. Is that impacting your business? What's what's your view?

Andy Bromberg Glad we're talking about this. It's an important topic and it again goes back to this terminology issue that the industry struggles with, just to set out a definition here -- our definition of security tokens which you were just referencing is that a security token is a token that is sold as a security and also will always be a security. So for example Filecoin (those tokens that we helped with) they sold SAFTs which were securities representing future ownership for Filecoin and at some point the intention is that those investors are going to get Filecoin and FIlecoin is going to be a non-security. So even though Filecoin sold or protocol apps sold those SAFTs as securities we don't see that as a security token offering because the intention is that the tokens eventually will not be securities. So when we talk about security tokens we're talking about like you reference things like real estate backed tokens or other kind of investment backed tokens where the token itself will always be a security. In 2018 I think we saw a lot of buzz around this frankly because people were really searching for the next big thing. The 2017 hype wave died down around more traditional token sales. If you can call it that and all of a sudden people needed something to grab onto and this narrative started developing around the tokenization of everything and that got really hot and it got a lot of attention. My view still is that we will see more and more assets becoming tokenized over time and that that narrative will play out. I just think it's way further out than people are giving it credit for at that time. So in terms of how its impacted our business. We didn't build around that. We've always built around serving whatever the market needs are at that time we did not see sufficient demand in 2018 for these asset backed tokens.

Frank Chaparro So back then like in 2018... So it's interesting because I feel like you guys probably went through phases where in 2017 you had a lot of the ICO team projects come to you: hey I might be interested in doing a token sale through you guys then maybe 2018 maybe we saw with Harbor's deal that went kaput with the college dorm maybe you had some real estate deals coming to you and saying hey we're thinking about doing a token sale. How did that transition? Did you see 2018 some folks come to you to structure or rather facilitate...?

Andy Bromberg Absolutely. Yeah we saw a lot of that in 2018 and ultimately we're looking at these deals and we have to vet them right and make sure that we think they're fit to be run in our platform we have a whole set of criteria to process we go through there for making those decisions, we can talk about that but ultimately if there's not demand in the market for those issuances they're just not going to be successful issuances and so it doesn't make as much sense to work with them.

Frank Chaparro Yeah and it was the gap year. You've talked about the gap between crypto folks who know nothing about for instance real estate and the real estate folks who have no interest in tokenizing

Andy Bromberg Yeah that's exactly right. I think the the view is that there are two possible investors, there are these real estate investors that could invest in a tokenized asset but they don't want to right now.

Frank Chaparro Let's dig into that. Like I'm sure you've talked to a lot of folks possibly on both sides. Why isn't the appetite there? We've heard all these things about you know the problem of liquidity in some of these markets, the benefits that tokenization would have and as much as you know it would facilitate easier trading of some of these things or add more transparency to some of these markets that are opaque.

Ryan Todd Unbundling a rate so you can be more selective on what's inside of that type of product.

Andy Bromberg Right. There are benefits here. To the question I think if I'm a real estate investor like a traditional real estate investor and someone puts a tokenized real estate deal in front of me I'm likely to pass on that. And the reason I'm going to pass is that, first of all there are a lot of deals out there in the world and a lot of deals where I understand exactly how they're structured, all of the implications of the instruments that are being used who's offering, all these different pieces. When I look at this tokenized deal there's just an element of uncertainty because I've read these headlines about tokens and bitcoin and theft and all of these negative things and at the same time it's just a different new structure I might be looking at and saying listen this is interesting I hear you on the benefits, the fractionalization, poseability, all these pieces. But at the end of the day I've got other deals that I understand much more easily, that I think are gonna get me great returns I'm investing in those deals. Getting over the hump there on going from giving people an incentive to get into these deals, that I think is the hardest piece there. I think again it will happen at some point but right now there's just, it's uncertainty it's not actually to be clear that there's anything bad about the tokenized deals. In fact I would argue that they're better in a lot of ways than the non tokenized deals but there's just an element of uncertainty for investors are not used to investing in tokens.

Ryan Todd I guess to that point you mentioned due diligence on these deals. Do you offer any assurances or even like insurance almost on like whatever's listed on the platform?

Andy Bromberg We don't. So. So again we're just a technical services platform for running the sale. So we vet the things that are on there but we don't perform formal investment due diligence or anything like that. For us it's much more a matter of of making sure that the product is something that our customers our users on the platform would be interested in buying potentially. In the same way that any kind of online store vet products for putting them up there that's that's what we're doing. To make sure there's a fit with our customer base.

Frank Chaparro And so what happens once you do the token sell commences. Who plays a role in getting that on to an exchange or marketplace is that you guys. Is it the project themselves.

Andy Bromberg Yeah. It's generally the project where of course always happy to help with things like that make introductions and do all of that I think at the same time a lot of the projects we've run are still actually illiquid because what we often do is let people invest in these sales at a really early date again through a thrust after some similar instrument before the tokenized actually live. So there's no trading on exchanges for these things because they're still illiquid the team still developing the project and at some point it will launch for some of them very soon. And at that point then it's an effort to get them on exchanges and allow for more liquidity and a more open market. But a lot of the time we run these sales and then investors and they know this going and of course are locked up for quite a while as the projects developed and you're trading that. The downside the illiquidity for the potential upside of getting in really early on a really high quality deal.

Frank Chaparro It's interesting what so let's let's then go to let's fast forward to today. I think we spoke in March you said the pipeline was relatively strong you were expecting a handful of deals to go through we saw Algorand go through must mean it was kind of right round when Facebook Libra announced. Kind of took some of the limelight out of that.

Andy Bromberg Still went very well.

Frank Chaparro Yeah it was it was a strong it was a strong deal what what what does the environment look like now what is the deal pipeline look like and then maybe we could talk about Algorand and what your thoughts were.

Andy Bromberg Yeah yeah I was gonna say it's it's it's still very strong perhaps even stronger than it was then I think in a large part due to Algorand and I I don't think Algorand has impacted our pipeline as much because of Coinlist running the Algorand token sale but just because the Algorand token sale really broke the ice on a pretty long period of token projects not being able to raise substantial amounts of money and it's great that we helped facilitate that. And they were the platform they ran there at their auction on and so a lot of people are coming to us as a result but a lot of token projects were sitting back on their heels a little bit saying we're going to run a token sale at some point but this market's really uncertain it's not great we should wait it out a little bit and our Algorand shattered that with 60 million dollar first auction that they ran and I think that made a lot of projects think that now might be the time to go and run a sale so we're in discussions with with a lot of great projects on exactly that.

Frank Chaparro What do you think the difference was between Algorand and then OCEAN missing the mark and going off to do an IPO. Was there something about Algorand that was set up a stronger foundation for them to to raise that much money or was it the environment.

Andy Bromberg It's so hard to say with these excuse so many factors at play right when you go out to do a fund raise there's not a single effort I think a lot of it is the environment the environment has to be right this is such a momentum driven industry and so you have to hit it right on the nose but it's also really important that you know the tech is there the team is there the products there that the team has actually fundraised really effectively and and push forward there and even you know if you look at the orders of magnitude of those two offerings at the Algorand offering certainly was in part targeted towards more institutional investors able to write big checks the OCEAN offering was not they were going for much more kind of broadly distributed smaller size set of investments and so even that those are two separate environments. The institutional environment and the retail environment and and so I think you know Algorand was was very successful because of the team and the product in the market and and how everything came together at the right time in addition to their efforts or on fundraising from those institutional partners.

Frank Chaparro It's interesting. So with OCEAN going then off to do an IEO to raise more money. Is is does that mean are IEOs platforms... We've seen a bunch of them spring up in the past couple months since at least beginning the year. Are they complementary to what you do or are they in competition to what you do? How do you view that development as it pertains to your business?

Andy Bromberg Yeah we see that as as complementary. An analogy I use a lot. I think there is a lot of talk of how ICOs or token sales are similar to IPOs on the traditional equities markets. And I really don't see that because most token sales especially the ones that we've run are for assets that are still illiquid. So an IPO happens when a stock goes liquid and starts trading on a secondary exchange. Most token sales that we've worked with. Don't do that now on the other hand an IEO is exactly that. The IEOs happen when the token is going live and liquid on exchanges it's an initial exchange offering. And so what we see is that the token sells that we have run historically have been much more like private fund raising before a company goes public and then at some point there is an IPO or in this case an IEO and that the token or the equity goes live and starts trading liquidity on the secondary markets. And so we see it as a very natural thing that a lot of teams could run a token sale with CoinList early on for investors to get involved at the early stages and then when they're ready to go live run an IEO and actually go go liquid and live there. So we see it as as a complementary service.

Frank Chaparro Yeah but it matters where you go right. I mean we've we've got a strategy, I don't think it came out yet but there was this one shoddy shady exchange and I don't even know where they're based but they're either Russian or Chinese.

Andy Bromberg This is gonna be this is gonna be true every single every time there is a innovation in the crypto space around fundraising or anything else. You see a few kind of shining...

Frank Chaparro So you see the echoes of 2017. So with this one in particular a project that we spoke to said that they you know the company or rather the exchange platform said they raised to something on million dollars on the platform when they had actually only raised three thousand or something like actually egregious. And it's just funny to me. You see the echoes of what was going on in 2017.

Andy Bromberg It's gonna be the exact same story and it happened with exchanges themselves and secondary trading platforms when all these first ICOs tokens started to become liquid there were really good exchanges and really bad exchanges and scamming exchanges and now it's happening with IEO platforms and it's going to happen in the next wave to whatever that ends up being. So what we always say to issuers is you've got to do your diligence. You may think these these platforms are vetting you you've got to be getting that and making sure that you're working with partners that are representing your brand well so you can get in a lot of trouble if you work with the wrong people.

Ryan Todd You mentioned earlier earlier on that you know in 2017 there's a lot of these other competing providers platforms insurers all that stuff. What's really been the reason why you guys are still around and just had a successful Algorand launch?

Frank Chaparro Nine million dollars of runway.

Andy Bromberg Well I think I think the reason we're seeing there may be practical reasons why we're still around but the more existential reasons are around a couple of things: 1. You know I selfishly would just just praise our team's ability to execute in a space that's full of people that have really struggled to execute. And so that's obviously a critical component just making this happen day.

Frank Chaparro How many of there are you?

Andy Bromberg There's about 25 of us. And I think the the second piece is we've consistently kept our bar really high for who we work with. And so we easily in 2017 could have gone for the momentary cash grab with every single token sale out there just sprayed and prayed and worked with the low quality issuers and we sat back and said listen that could be a great revenue event for us for the next three months but this space is gonna change and the people that are going to survive and stand strong are the ones to go to work with the best issuers. And so we've kept our bar really high and that's stayed strong through the heights of 2017 the lows of 2018 and now as the market's coming back maybe with our Algorand and others you just have to stay focused on working with the best people that's the way to build a long term business. And and so that focus plus just going out and executing every day and providing the service that we do to our customers is I think what's let us you know stay around.

Ryan Todd Have you seen any changes in issuer trends like who these actual issuers are where they're coming from geographically? Are they still the same players?

Andy Bromberg Yeah. They're constantly changing. Right. And I think a lot of that is just again I'm a broken record on this early stage industry. Everyone's sorting out how things should work and what the norms are going to be. So you can even look at kind of the trends within what these issuers are doing. At one point there were a ton of Layer 1 protocols building this kind of base layers and then that settled down a little bit. Well everyone looked back and said Well let's let that first batch sort themselves out. We saw more application focused token sales. And so we see these cycles at the same time absolute geographic cycles as the various regional markets go up and down highly correlated with the global market but not a 100 percent correlation. And so there have been times we have gotten tons of Asian project commuter tons of European projects or tons of U.S. projects and and it's just a matter of keeping an eye on those trends trying to be ahead of them. And I think recently what we've seen is actually the last thing I'd mentioned there is obviously just a number of projects coming in our door has changed massively. Right. In 2017 it was an never ending deluge mostly of really low quality projects. And then we kind of into 2018 saw the same number of high quality projects coming in but way fewer low quality ones, the market stopped being so good. And now we're seeing a kind of uptick again in overall numbers. And there's just always going to be a cycle there for projects in our door.

Frank Chaparro It's kind of sounds I feel like and we've talked you know we've known each other since 2017 and we we have frequent conversations and every time I feel like it I talk to you Andy it feels like I'm talking to my friend John Tuttle head of listings at NYSE or Nelson Grigg's the head of listings at Nasdaq. When we talk about the deal flow pipeline and what issuers are looking for why and why not folks are coming to market it's not too different from what drives trends in the IPO market. What I'm curious to know is when we talk about when I when I would cover that market. Business Insider before The Block the question was so what's what's the competition between NYSE and Nasdaq. It's not really clear who you guys are competing with I think because of all these different terms and when you are fighting for deals who are you fighting with and how do you you know present that value proposition for why they should bring that deal to CoinList

Andy Bromberg You know at the at the risk of sounding like a weaselly answer here the biggest competition is always the issuers doing it themselves right and this was the same thing. In 2017 this was exactly the question was out there are these issuers all going to run their own token sales with their own infrastructure and maybe cobble together some different service providers.

Frank Chaparro Yeah well that's a good question. Why do why don't these I mean if they can figure out how to build these complex systems...

Ryan Todd Too much of a headache and there is a company that's proven they can do it.

Andy Bromberg It's a huge headache. You get economies of scale from doing a lot of them and even more than that a unified seamless well tested experience for these projects. This is often up to this point the most important moment in their entire lifecycle the minute their sale goes live. Right. And this is a funnel where...

Frank Chaparro You don't want to fuck that up.

Andy Bromberg Yeah. And and every single dollar that comes in is meaningful to the issuer. You need that funnel to be incredibly smooth. You need to get as many people through it as possible you needed to feel like a unified experience. And so that's what we do right. We've spent a couple of years just doing that and building that with a whole team of people and go into a ton of these sales and we get better every time. So for these projects could they do it themselves. They could cobble together what are the costs. I don't know it varies project to project but if you think you're going to have a successful offering it is almost certainly worth the money to go with a dedicated provider to make that happen.

Ryan Todd What about the other side of the funnel to do. Do you pitch that you had this investor base that's comfortable using your platform to fund is that an.

Andy Bromberg Yeah that's that's not so much for us. I think one of the biggest pitches that is meaningful is that you know people trust CoinList. Again we've kept a very high bar for projects we've worked with and so in a similar way. You know I almost think of it like when you go to when you go to an e-commerce site right and they've got like badges of trust on there or like you know an SSL certificate all the basic stuff that gives the consumer more faith in what they're buying that it's real that it's good authentic. And so they go through that transaction with a much higher conversion rate. And and for us we'd like to think that that same we obviously don't have data on the same sales running on other platforms but there's trust in our platform in our name and the quality of service that we provide. And so we'd like to think that. And it seems to be true that investors are more likely to convert in a sale happening on CoinList going through that process. The last thing I mentioned there is that there are also very tangible benefits because in certain cases if you have verified with CoinList before for something like KYC which is often pretty painful process going through KYC submitting photos of your documentation and passports licenses all of that oftentimes if you've done that before with CoinList you don't have to do it again. So if you participated in one offering and then you want to go participate in another it's much easier. And that is a huge friction point making me upload my passport photo and go through that verification so if we can skip that for people because we've already done it for that individual investor that's a higher conversion rate right there.

Frank Chaparro Part of you know we reported back in February that you guys we've talked to the issuer relationship on the other side the investor relationship. Aside from the the trust factor being there you guys are no longer providing any sort of investment advice through your IRA a. Walk us through the thinking of putting that on the shelf and not engaging directly to the same degree with investors was it the result of regulatory and the lack of regulatory clarity expense or something else?

Andy Bromberg Yes. So for context we had set up what's called a registered investment advisor entity and are the investors on the platform or clients of that entity. And what we would do is we would run the deals through this entity so we were saying to the investors here's some investment advice we've looked at this deal it's nondiscretionary so choose whether or not you want to invest. But we looked at this deal. Here's a bunch of data on it. Do you want to invest in if so go through this flow right. And we would charge the investors a fee for making that investment a management fee on on their investment going in. And this was an interesting model and we did this because we initially had this thesis that would be better to be able to charge its kind of percentage based management fee to the investors. And ultimately what we realized is and this is again part of the the whole idea of being flexible on this space and adapting to where the markets going because nobody knows what the market is going to be with absolute certainty in six or nine months. We realized that actually issuers were just fine paying us for our services we didn't need to make it free for the issuers. Investors didn't really like paying us bills for them. They're already writing a check. Right. They're investing in this project they're writing a check and locking it up for a year or so or however long it is for thousands of dollars if not more. Nobody really wants to add additional fees to that. And then on top of that running this regulated entity was a lot of work. And it's because we're doing it right. But it meant that there were a whole bunch of operational burdens on us in running this registered investment advisor. And so ultimately we did a bunch customer research. We talked to our users investors and issuers and came to the conclusion that this would be much easier as a pure technical services platform where we provide services to the issuer they pay us for those services.

Frank Chaparro So previously the issuers didn't pay.

Andy Bromberg That's right. Investors paid

Frank Chaparro So now is it the same economics.

Andy Bromberg It's different economics, we charge for all the service we provide on a different basis because again before we were providing services to the investors now it's to the to the issuer. And but ultimately it all looks and feels very similar to people. It's just a much more kind of pure service experience now

Frank Chaparro Now let's think about what you are anticipating for the second half of the year. That's sort of been that's set in stone now. You said the deal pipelines picking up slightly. What what if you were to put the crystal ball in front of you for a second. What are you anticipating in the next few months.

Andy Bromberg I don't know where you're getting this crystal ball but I would like to have it. I think one thing we're seeing a lot of and again post post Algorand and is interest in auctions and I think this is one of the problems.

Frank Chaparro So what's the deal with this?

Andy Bromberg So Algorand ran a Dutch auction.

Frank Chaparro Oh that's right. As opposed to a Dutch oven.

Andy Bromberg So Algorand ran a Dutch auction and. And the way it worked, I will dramatically oversimplify for the purpose of this audio format here if we were in front of a whiteboard we could do much more but you can check it out it's all online obviously. Basically the price started at a certain point and investors committed to bids at a certain price so I could say I'm willing to buy so much at five dollars an Algo or two dollars an algo or one dollar an algo and as the auction went on the price ticked down until all the orders filled. And so everyone filled at the same price. Right. So if there'd been a ton of demand at the very top price it would have cleared at that very top price. That was never the expectation. Right. And so it's it's a price discovery mechanism where the price ticked down over time until there was sufficient demand at that level for all of the algos (25 million that were being sold) to be sold and everyone no matter what you bid above that cleared at that price.

Frank Chaparro And so that solves what?

Andy Bromberg Price discovery. Right so so before again broken record new early stage market. How do you value these assets is a open question. Right. It was a lot of theories on how you value these these token projects and what historically has happened is that projects have for the most part. There's tons of exceptions but for the most part they've picked a price and they've said we're selling tokens at this at this number at 76 cents a token come and buy them and and that's, they don't know what the response is going to be to them doing that. So that's where some unsuccessful sales will come from that's where sales that were.

Frank Chaparro And that probably keeps folks from conducting a sale or at least keeps them from doing it or at least draws it down the you know kicks it down the road.

Andy Bromberg And you can imagine if I arbitrarily saying I'm making this number up I'm charging seventy six cents for each token you could have an unsuccessful sale because people think that's too high and I don't reach my target. You could have a unsuccessful sale in some sense if the sale sells out really quickly and I realize I could have been charging eighty six cents per token but there's a market equilibrium here right that where buyers and sellers are buyers and the seller are willing to meet. And what an auction does at least in theory and often in practice is it discovers that price it finds the optimal price that meets the needs of both the seller and the buyers. For the sale to go through. And so the first Algorand auction ended at two dollars and 40 cents per per algo. And you can imagine a world where if they had just done a fixed price thing they could have priced it at a dollar fifty and missed out on the proceeds from the additional 90 cents per algo or they could are priced it at five dollars and not been fully subscribed and had an unsuccessful sale but instead they went out and they said and I think very intelligently. Listen the market will buy it. Buyout goes at some price. Let's let them do that and we will use this this very clever interesting. Structure to to let the market determine the price of this offering.

Frank Chaparro It's interesting because it makes me think about whenever there's an issue in the market where we're not you know you're not having buyers and sellers come together you either have regulatory improvements or you have structural market structure improvements that try to remedy that or ameliorate that with what you're talking about. Sort of reminds me of how we've seen direct listening kind of come into traditional markets to solve the problem of well I'm a massive company I need liquidity that I can tap in to the public markets but I don't necessarily need to raise that much capital or necessarily raise my public profile. So here you have this mechanism unlike an IPO where you can go directly to market and here. Similarly you're solving a very big problem which which I guess now knowing is price discovery for some of these projects. What is is is that something that you anticipate will like so for equity markets the direct listing has now become a sort of you know elixir so to speak that can help bring those tech giants in. Is the Dutch auction comparable in as much as that it will bring more projects to market sooner. On the token sale side or is it just the first and other developments that is going to make this that will make this market more efficient and more appealing to issuers.

Andy Bromberg I would think a little bit of both. I think the biggest piece of this is just the market finding its footing and we've had this price discovery problem it's a known problem the space and and seeing it's one thing to be able to say oh an auction would solve this. Right lots of people have said that over the last couple of years of course when you have a price discovery problem auctions are a good way to solve that. It's very different in practice to actually see a successful one go through. I'll tell you one downside of an auction especially one like the one Algorand granted is it's more confusing then selling tokens at a single price. Right. If I tell you I'm selling my tokens for 76 cents a token. That's very straightforward for investors to understand. OK. Great. I'm buying tokens at 76 cents a token. Here we go. When you do an auction all of a sudden investors have to figure out the price they're willing to bid at or how much they want to buy a different prices or some other variables and it's it's more it's hard to understand. And so there's there's always lots of things that seem like theoretical solutions to problems but are not in practice solutions. I think what Algorand demonstrated is that it's possible to practically run a token sale very successfully in an auction format. And I think that could lead to the overall market changing and people doing a lot more of that instead of the older style of token sales. But I think it will also lead to two token projects looking at and saying you know we weren't comfortable before running a sale because we didn't know how to price this effectively. Let's just do this and let the market decide.

Frank Chaparro What about what about Facebook is that move the needle for your business?

Andy Bromberg You know for for our business I don't know that it has had a meaningful impact. I think in the long run it will. And I'm really excited but the Libra project because I think it's gonna expose so many people to crypto that never would have been exposed otherwise or not for a very long time. And it can happen very quickly and that is just a net positive for the space. So up to this point I think maybe we've seen a little impact I think certainly some investors that were less interested in crypto are now more interested. This is really the first intense genuine move by a massive existing company to move into the space. That's a good signal for a lot of investors. But I think the biggest effects for us will be in the long run as more and more users.

Frank Chaparro So it probably impacts more so the investor side of CoinList platform than it does the issuers?

Andy Bromberg That's exactly right.

Ryan Todd I don't know if this is still a thing or not but it really kind of promoted airdrops.

Frank Chaparro What happened to airdrops?

Andy Bromberg Yeah it's an interesting question that we we helped run the DFINITY airdrop which was a massive success. Thirty five million dollars to tens of thousands of users really great. And and I think airdrop attention on airdrops really dissipated over the second half of last year and into this year. And I think the one reason for that is a lot of reasons one big reason is that most projects are not ready for an airdrop yet. Right. So my favorite analogy for airdrops is and this is you know lots of we've used this as a PayPal right PayPal gave away 10 dollars or 20 dollars to every user in the early days as a way of user acquisition and then you'd use those 10 dollars PayPal credits in the service and you'd get addicted and you'd you know put more money onto the PayPal platform that in theory is how airdrops are supposed to work. Here's ten dollars or whatever of a token use that oh wow this is a really interesting product I'm going to go put more capital and start to use this more aggressively. The only issue being that there are not a lot of fully usable token projects right now where users end users can actually see significant benefits from using it. Right. Most token projects that are liquid today are mostly used from a trading perspective or from a speculative perspective not from an actual usage perspective and so from a airdrop from the airdrop side of things. If the token is mostly used just to trade giving someone money in that token doesn't necessarily incentivize them to buy more of that token because they're just traded then they may make their own investment decisions from there on out I think as projects start to get more adoption. The consumer facing projects start to launch get some early traction. That's where we'll see airdrops start to pick up again. But I do think last year was probably a little bit early in the market

Ryan Todd Bringing it back to Libra. I think that's like one of the targeted ways to bootstrap your paypal example. I mean like they're gonna have to airdrop in theory Libra.

Frank Chaparro They have to because they're the unbanked. How else will the uned bank get to them?

Ryan Todd So I think there are interesting use cases like that.

Andy Bromberg But again that's a great example because it is consumer facing right. And so you need those consumer facing use cases for airdrops to really make sense in my eyes.

Frank Chaparro I think that's where they're going to tie in some of the charities that have gotten involved.

Ryan Todd NGO's

Frank Chaparro Yeah. Those NGO's they'll probably you know help get boots on the ground to to you know onboard these folks onto Calibra the wallet or other wallets. If there's more at that point.

Andy Bromberg That's why I'm so excited because there's just so few crypto companies that have the ability to do that. Can you imagine like you know going out handing out phones whatever credits whatever it is onboarding people crypto companies just are not equipped to do that. And Facebook is and its partners and so that will get massive adoption that otherwise would have been way later in the space.

Frank Chaparro Do you think they're going to clear like the regulatory hurdle I mean Marcus in DC kept saying ad nauseum we're not going to do anything without regulatory approval. I feel like I wonder if that's true. Like I wonder if there's a certain point where maybe regulators might be unreasonable at a certain point the future and they say listen we're trying to do everything we can. We're gonna just move forward with this in in different jurisdictions and if that's if the goal is to unbank or rather to bank the unbanked I mean not being in the U.S. isn't that big of a missed opportunity right.

Andy Bromberg So I and obviously just speaking for myself you're not their team. If you look at I think absolute that's why.

Frank Chaparro I was speaking for their team.

Andy Bromberg That is amazing authority. Going to other jurisdictions is an option a lot of crypto projects have done. And you can certainly make the argument that is with regulatory approval as long as you then don't do things in the United States that you shouldn't be doing. And so I don't think they would do anything that they should not be doing in the United States could they go and spend more time overseas and not focus on U.S. users. Absolutely that's a possibility. I also think there's there's an important note here that not everything needs to be approved from a regulatory perspective. Right. If I go and I start a Web site I'm selling T-shirts right. There's no approval needed for that. That's just it's not even a question. Right. And so if they can get comfortable with the idea that what they are doing does not require any sort of regulatory approval they don't need to wait to be blessed because there's no one to bless them. And so that's the question is are they doing things that require approval. If they are then there is no doubt in my mind that they will work as hard as they can to get to that and they will not launch until they have that approval. But if they're doing things that don't require regulatory approval then there's no need to do that waiting.

Frank Chaparro I guess the point I was trying to make is I feel like there is so much animosity around Facebook that there could be a point two years from now where they have every money transfer license they could possibly have they have they have you know every filing that needs to be submitted submitted and still at one point at some point folks like Maxine Waters are going to say well it's still Facebook tied to this. It's OK it's not kosher.

Andy Bromberg Absolutely. But but if I am and this is then just a legal and business risk decision. As far as I'm aware the government does not have the power to look at a private company and say you are not allowed to launch this product. We're not gonna tell you why but you just you can't launch it. That's not something the government can do. Now if they come and say this law applies to you and you are not meeting requirements there and so you cannot launch. That's a totally different story. But if they get everything they can possibly get and then a statement comes out saying Facebook don't launch. You know I would have to be looking at that with a very very precise magnifying glass and you know. But if if the the council and the team and the executives in the board can get comfortable with the idea that that statement is just a desire for them not to launch and not an actual sighting of guidance or rulemaking or laws in the United States that is not an impediment to launching at that point.

Frank Chaparro If they do launch what do you think that we've argued and debated about this internally here at the Block, what are the chances of success do you think.

Andy Bromberg It always depends on your definition of success. I think they will get massive adoption if they choose to go and launch this and I should add that they've demonstrated so far every indication they are very committed to this effort that that has to continue right if they every big companies launch a lot of products that they are not committed to and those products have failed. If they are very committed to this they do things the right way and they put their weight behind it. I think they will absolutely success in some form. Will it become the number one cryptocurrency in the world forever. I don't know. That's tougher to say but they will certainly get adoption if they really are willing to put their weight behind it.

Ryan Todd I went to the regulatory point I mean we have a lot of growing sentiment that the US is just still too unclear on a lot of things. We have Circle's CEO going on tomorrow.

Frank Chaparro Yeah he's going to be speaking in front, this is going to come out like two weeks after that but in past tense he was there and he did a great job. From what I remember. That's an interesting question. Like what. There seems to be the sentiment within the cryptocurrency space. I mean we hear so much from the exchanges like you mentioned Jeremy at Circle which runs plenty X and their geo fencing a token every other day. They've moved to Bermuda. Is there anything that is super unclear that if you could just if you're standing in front of and I know you engage with the regulators alot so maybe you have done this. Where you're basically thinking all right this just doesn't make sense. Can you designate you know can you define x or define y?

Andy Bromberg There are there are a number of of open issues in the US and we talk about a couple of them at the same time just a meta point on this I think is that this is true in every industry that there are jurisdictions that are more and less permissive and they come with pros and cons and one huge con to going somewhere else is that you no longer get access to the US users. So if you if you go and you say I'm no longer interested in the U.S. it's too unclear here. And certainly I don't think anyone would contest the point that it is more unclear, the regulation on cryptocurrency that is, more unclear here in the U.S. than it is in certain other jurisdictions. That is unequivocally true. But at the same time the U.S. is a massive market and there are regulators that have a mandate to protect U.S. investors. And the reason that's so powerful is that the U.S. investor base represents a lot of people and a lot of capital. You have to be willing to forego that if you're going to go elsewhere. And so that's, there's always a set of tradeoffs you have to be making, it's not as easy as just saying the US has a more stringent or less clear regime. I'm going to go somewhere that's more clear that comes with downsides too. Within that, without trying to get too in the weeds here. One big point that keeps coming up around regulation of cryptocurrency is the applicability and definition of custody rules. So the US has a lot of a lot of regulations around what it means to hold custody of assets especially securities for a qualified custodian to be a qualified custodian. And and there's a whole bunch of rules here one big one that you look at is one called 15C3, around the definition of what it is to have custody of something and to fill that role and and thus far and the SEC said this in their statement they released a few weeks ago there is not firm definition on that yet. And so that's a big question that just needs to be answered for a lot of these broker dealers and ATS's and other entities to to be able to operate effectively in the space and then separate from that. The SEC has continued to make strides on this but it feels like kind of the ever present question in the US is where is the line between something being a security and nonsecurity in terms of tokens and it seems clear at this point that it's possible for tokens to be securities it's possible for them to be nonsecurities. Clearly there has to be a line between those two somewhere and that and I think there hasn't been a hard and fast rule making or guidance on exactly where that line the SEC has continued to put out materials about that and different thoughts on different angles but nothing really firm.

Frank Chaparro Have either of those two things served as an impediment to Coinlist launching a new product or operating in a certain way? I know you guys even from when we first spoke back in 2017 for the first time had ambitions to create a secondary marketplace, earn ATS, do the questions of custody or or what exactly these assets are, whether they're securities or not? Is that an impediment to going down that route?

Andy Bromberg It's absolutely a discussion we're having with the regulators and yet for any business that fits into those issues you're going to run into that until those issues are resolved. So we certainly had those conversations. There are also you know we kind of firmly put this, and this fits into our operating model, that I was talking about earlier. We firmly put all of this on ourselves. Right. It is our responsibility to execute on all this and execution includes understanding and and eliciting regulation rulemaking guidance that allows us to operate in the way that we want to operate. And so anything that that isn't yet clear or is impeding our business that's that's on us as a part of the execution that we have to do in the legal and regulatory side. But yea to your to your question directly, absolutely, questions around what it means to have custody of a digital asset and maintain that custody in a in a legal and regulatory sense is a question that we are wrestling with for the products that we offer and want to offer.

Ryan Todd With that said I mean I would say the majority of your offerings have been open to U.S. investors or...?

Andy Bromberg That's right. And generally and not every single one. But generally under the Reg D exemption for securities offerings which allows you to sell, to generally solicit, so sell and alert people to the fact you are selling a security to accredited investors. That's one of things we do for all these offerings are most of them again is verify the accreditation status of the investors, making sure they have a certain net worth or income level.

Ryan Todd So they found a way to make it work.

Andy Bromberg You got to find a way to make it work. That's and that's it. We want to serve US investors and US issuers and so we'll find a way to make it work. Sometimes that comes with instructions.

Frank Chaparro Are you trying to figure out how you can expand the platform to reach non accredited investors if you can figure out a way to make it work?

Andy Bromberg Absolutely. So you know one example of that. I'll give you two examples of that, actually one is the block stack Reg A offering which we've helped with. And that offering is open to non accredited investors under the rules of Reg A. So that's one way and then separately the Algorand sale was also available to not accredited investors because they are a non U.S. entity. They were selling to non U.S. investors so they were able to avoid that U.S. regulatory regime. In that sense we provided the technical services for that. So there are ways for us to serve non accredited investors. It just so happens that it's not again you know to go back to the example not the same as us opening up a T-shirt store and selling things online.

Frank Chaparro That makes a lot of sense. What other trends are exciting in the space whether they're a tailwind for Coinlist or not, that you think is fascinating that people might not have picked up on yet?

Andy Bromberg You know this is maybe the most obvious trend but perhaps not as obvious and how it relates to us. I got into this space originally because of bitcoin and you know this is back in 2012-2013 when I went and started the Stanford Bitcoin group with a bunch of other folks and led by our professor at the time [...] who then started Earn and sold it to Coinbase and served as Coinbase CTO and for a long time that asset has been just really exciting to me and we've seen you know obviously if you look at the charts a big surge in Bitcoin's value as people recognize that over the past six months or so. And I just think that bitcoin is the space. People forget this, it sounds almost silly to say that but people forget you know bitcoin is the single biggest digital crypto asset that is out there. And so every time we see that market go we said it's just a really good sign for the space as a whole maybe speaks to a broader point that from the Coinlist perspective we're building this business for the long term. And with the assumption that the digital asset market is going to be much bigger than it is today. Right. Right now there is a ceiling on how much we can do because the digital asset market is reasonably small compared to lots of other markets. And so for us it's all about what can we do to grow the pie right. How can the space get bigger and anything whether or not it's directly related to us that grows the space we see as a win. So when things like bitcoin do well you know eventually when things like tokenized assets and security tokens do well whether or not we have our hands in those pots growing the crypto space is what will enable us to grow really big. And we think every company should have that mentality and the last thing I mentioned there is just that, this space is so positive sum right now as a result of that fact. All these companies in this space should know that yeah we can compete for market share with each other and fight back and forth over a percentage points now but those hopefully will pale in comparison to the size of percentage points 5 10 15 20 years from now

Frank Chaparro To that point do you see firms who are somewhat in your business coming together thinking about how we can address some of these regulatory uncertainties or other problems faced?

Andy Bromberg Constantly. This is one of the things I love about this space is whether or not someone's a competitor or a quasi competitor, totally unrelated to what you are doing. Everyone knows/accepts this fact that cryptos positive sum. We all want this space to win. Let's work together so to your question of regulatory side of things constantly having meetings in D.C. with a bunch of other crypto people from different companies and different backgrounds because that united front tells a way more compelling story. And I think it's important that as the space grows and the stakes get higher we keep that mentality for for as long as possible becuase I think that's what's enabled the space to get where it is today.

Frank Chaparro Well Andy we appreciate you coming on. Dutch auctions, the regulatory landscape, your thoughts on Libra. Thank you so much for the wide ranging conversation. Ryan. Thank you for being the co-host. What would I do without you?