VDP-73 [Governance]: Fractionalization of ApoptoSENS IP-NFT

@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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