@Jesse regarding the question below - do you remember anything about why fractionalization can’t / shouldn’t raise more than the original funding amount?
Why is there a cap on the amount fundraised by the FAM launch?
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In fact, the sale of FAM fractions can raise more.
It is the sale of FRENS fractions should be capped at the amount paid. The reason for this is to satisfy the FR, Fair and Reasonable, terms of FRENS. More here: FRENS: A Generalizable Legal Framework for Fractionalized IP-NFTs | by VitaDAO | Medium
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Thanks Laurence for advancing this. If all we are really doing is fractionalizing and figuring it out from there I don’t see an issue with proceeding with all of our IP-NFTs. My concern about ApoptoSENS is the relative immaturity of this asset. Data is rolling in but it’s hard to get a sense of what’s a good value for potential token holders. We obviously want people to feel like they are getting good value by supporting these assets at the early stages.
All this said, the whole point of IP-NFTs is to create liquidity where none previously could exist. It’s an experiment. We are all interested in seeing how this will play out. So I say let’s just launch them and see what people think. Perhaps launching several of them at once will make it easier to evaluate the experiment? Bigger “N” - lol more statistical power.
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VitaDAO NFT collection drop
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Agree with everything said here… think we should be open and experimenting with the parameters, which are to an extent also up to demand
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Thank your for this well-thought proposal: VitaDAO does not cease to surprise me with its appetite for disruption and the talent of its contributors!
I can see that much thinking has gone into this, from practical implementation to potential benefits and what-ifs. I grasped the general idea, but I am not sure to fully understand all its mechanisms. If an explanation in simpler terms is not possible, a presentation would help, ideally with the possibility to interact with questions.
As for the general idea, the closest thing I can imagine is crowd equity (like https://www.crowdcube.eu/), except that it’s not equity, but IP from academic research that might be become an early-stage biotech. I am tempted to call it crowd-IP.
The main concern that pops to my mind is financial risk. Biotech is risky, even after in-depth due-diligence. Early-stage biotech is riskier. Upstream academic research even riskier. The only protection from investment risk is diversification. A biotech venture capital fund may invest in tens of biotechs, and the same goes for a an angel investor or a crowd-investor. Because the risk in upstream research is higher, in order to have a reasonable chance to make money, you might want to invest in at least tens of IP-NFT. Because most of the people in VitaDAO can be considered as small investors, this means that each one might only put a small amount in a given FAM. This reasoning has two implications:
- There should be many opportunities to invest, not just one, otherwise it’s just a stab in the dark. At the very least there should be a soft commitment to offer FAM for many more IP-NFT to come
- The whole process should be simple both for the investor and VitaDAO, otherwise it’s not worth it. For example, we could limit token rights to the first 2 points of the list. And the double requirement to pay with USDC and lock VITA may be too much (although I see its rationale)
Moreover, we should consider the whole life-cycle of the IP-NFT, and take into account the point of view of downstream stakeholders, such as VCs and pharma. Would they fund or partner in a company with fractionalized IP-NFT? Maybe it’s not an issue, I don’t know.
There is also a timing factor: a bull biotech and crypto market would probably be better to launch this.
So, I don’t think we are there yet and I am not sure that offering a cherry-picking value proposition is the best option. We might give it a try, but doing things properly would require significant effort, also considering all the other risks pointed out in the proposal itself and in comments.
One way to test the waters would be to propose to the community a presentation on this opportunity and poll it asking who would be interested and how much would she/he put in it: this would give a rough indication of the potential volume and justify further efforts.
Finally, I wonder is there is another avenue to give exposure to VitaDAO IP-NFT, with embedded diversification, like a FAM that includes fractions of several IP-NFT, a sort of IP-fund. Although the VITA token itself is not exactly that, it does have some of the right ingredients.
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I agree with Paolo; there’s plenty of time (both in terms of immaturity of VitaDAO assets and bera market) to get this ironed out.
I appreciate that there’s legal uncertainty, but that means this launch has to make positive arguments for the desired legal standing (and make sure that by staking Vita, it doesn’t turn Vita into a security). It needs to be strong enough for the lawyers, and also key talking points for those purchasing. Plus good risk disclosure/terms so it’s hard for people to sue VitaDAO/others when an IP-NFT goes to zero. FAM is a degen bet on tech instead of human nature.
Would not be hard to create a derivative product that holds a fraction of each. Depending on whether the IP-NFTs also get tags, this would let one manage sector exposure better, too. On the other hand, whoever controls the derivative would likely hold the pseudo-voting rights. This would also be a security, so best to register it with the SEC to avoid legal risk.
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Why not allow these NFTs to be freely traded without requiring to have VITA tokens?
To give utility to VITA token holders
I guess it would be unfair to allow anyone to buy these after VitaDAO put in so much effort to source, incubate, fund the projects. Makes sense to have it be members only (weighted by token holdings), until ready to raise from traditional sources at higher valuations.
May need to be careful with the language here. There is a fine line between offering something like airline rewards points and offering unregistered securities.
Since the IP will need to hold weight in the US, it will make VitaDAO more vulnerable to SEC.
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We got the greenlight from ApoptoSENS to publish the full agreement, so can provide that transparency here now. @benji can you add it to the original post?
The FRENS & FAM fractions are legally structured as sublicenses, so we’ll have to treat the fractions in accordance with Section 5.2, which says the royalty schedule shall apply to all sublicenses (i.e., 2% going back to SENS)
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I agree that there simply isn’t enough out there to get regulatory clarity. The intention with FAM has been to strip it down to the studs as a legal primitive so that there is flexibility to experiment and to not have any single experiment that runs rogue to poison the whole well.
I would suggest that, for the time being, we take FAM deployment into a bespoke working group for each fractionalization and do case-by-case strategy and analysis. Like mini FAM labs – kind of akin to House Committees (by analogy to US Congress). These labs could work out royalty schedule, ethics, regulatory risk, go-to-market strategy, and then report out with detailed proposals that speak specifically to the circumstances surrounding any given IP-NFT.
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Done. Let me know if you have issues accessing it. Also attaching here for convenience
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Is there any prior history of sublicenses being treated as securities in the US?
Is this a positive argument that one can make for FAM not being a security-- it is instead a sublicense to the tech?
One question about mechanics: 2% royalties are going out of style for NFTs. If a platform doesn’t enforce the royalty, how would one ensure the 2% royalties go from sale of the NFT on the secondary market?
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There’d be a legal agreement for FAM holders to be entitled to certain things. This cannot be affected by the mechanism of exchange/transfer. But not even sure we discussed how much the trading fee would be on these and how to enforce royalties (those transfer fees) going back to someone (the one minting?).
When we’re talking % of ownership and royalties, we’re talking % of the total royalties that the (collective) owner of an asset as a whole would get, right? For example, here SENS gets 2% royalties on any sales. Maybe VitaDAO would get another 3% plus equity in the spinout. If VitaDAO sells 10% of the FAM to someone, they’d get 0.3% of the final sales of the therapy (or if the asset gets bought, etc), right?
Otherwise, it’d be a sort of clear drag-along/tag-along exit when the spinout fundraises from trad VCs (they wouldn’t be ok with more than 8% royalties that the company would owe on sales - and that’s optimistic)
@benji @cbyrnes please let us know if I’m understanding this correctly 
We probably need to clarify & simplify things - these can get pretty confusing.
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There clearly is a ton of design space here which you mention - this is just some of the potential complexity that can be layered in to any NFT contract. I would be very interested in better understanding the needs of the DAO. Our goal is to start simple and grow complexity over time and leave room for experimentation.
To answer your question, we have not defined it as you have described it here, but of course we can adapt the smart contracts if this is attractive to the community.
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I’m not aware of sublicenses ever being treated as securities in the US. And there’s a lot of very strong arguments for them not to be.
At its core, an IP license is really no more than a covenant not to sue. A licensee has to exercise its own right to practice the IP if they want to get any value out of it. Simply having a license doesn’t grant the licensee any value or entitle them to any profits that another licensee (or IP owner) might earn from exercising their own right.
An example that I keep thinking about is copyleft software, which from a legal perspective is granting an infinite number of permissionless sublicenses in exchange for some type of valuable consideration (e.g., one has to accept the condition that any incorporation of copyleft code into their own product requires the new product to be copyleft licensed as well). Copyleft licenses have never been deemed a security and it would seem absurd to regulate them as such.
Of course one can make anything into a security if handled a particular way, but I agree that the precedent works in the favor of FAM as not being a security. As currently contemplated, FAM is a sublicense that grants governance rights and an expectation of active participation in the co-development of the IP, which is compensated by a right to a share of the royalties. It’s really a legal primitive for commercial IP commoning, which is how one could again describe the open-source software ecosystem (i.e., a commercial IP commons).
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What’s the status of this proposal? Also, I’d suggest keeping the proposal curated in a way that addresses the standardised poll template so as to not confuse a decision or the community.