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STO’s – Negotiable / Non-negotiable

November 10, 2018

I’ve been unsuccessfully trying to do STO’s for a few years now.  So I’ve got quite a bit of experience on what doesn’t work.  One way I think about myself is that I’m like one of the Wright Brothers in 1899.  I don’t have yet the gasoline engine that will let me build an airplane, but I’ve been building gliders and wind tunnels.  What I’m trying to build right now is a “virtual box” that you can put stuff in.

So let me talk about the two types of STO’s and the two legal structures for them.  So suppose a thief breaks into my house and steals some paper from my safe.  They could steal cash, or they could steal bank statements.  If they steal cash, then the cash is gone.  If they steal my bank statements, then that’s annoying but the thief doesn’t get very far.

So that results in two type of tokens with two types of legal structures.  For non-negotiable tokens, you’d want a GP/LP structure with the tokens corresponding to LP shares, and with the GP’s to have power to order forced transfers.  For negotiable tokens, you’d want a trust with the holders of the tokens being the beneficiaries.  These turn out to be radically different structures, but cash and bank statements are both paper, but they are very different types of paper.

I’m more interested in non-negotiable tokens, because my interest it to raise money for small companies and for BRI projects.  Once you deal with stocks and bonds, it is going to be extraordinarily difficult to get negotiable tokens working, not so much because the tech is hard, but because the government really, really, really does not want negotiable tokens for stocks and bonds to move money, and they’ve spent decades making sure it doesn’t happen.  If you try to move stocks and bonds into a negotiable box, then the government will invalidate the transfer.  Yeah, I can try to fight them, but why bother, I’d just use bitcoin.

Negotiable tokens might be quite useful for moving art and maybe real estate.  Art is cool.  I look at things from a physicist’s eye.  So when I look at a HK cash bill or coin, I see art.  When I look at a painting, I see money.  It turns out that they are the same thing for the same reasons.  If you are a famous artist in this part of the world, you are basically printing money, because one of the main uses of art is to store and move money quietly.  The difference between art and real estate on the one hand and stocks and bonds on the other is that you can “possess” art and real estate.  I can take a piece of art and hang it somewhere, and if I’m setting in the apartment, then I’m possessing the property.  I can’t possess stocks and bonds.  If the government says that I don’t own the stocks and bonds, then I don’t own the stocks and bonds.  Once you try to STO art, I’m pretty sure that the government will try to crack down on negotiable tokens, but in the end I think they’ll fail.

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