The Breakdown - The US Government Sold a Wu-Tang Album to a DAO for $4M

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, October 24th, and that means it's time for Long Reads Sunday. And today we have a fun one for you guys. So, our story starts in 2015. Well, really, it starts in the seven years before 2015, as one of hip-hop's most legendary ensembles secretly recorded an album that they called Once Upon a Time in Shaolin. Yes, of course, I'm speaking of the Wu Tang Clan. So they had secretly been recording this album for seven years, and in 2015, instead of releasing it

Starting point is 00:00:57 as normal, they held an auction. There would be only one copy of this album, and it was going to be auctioned off. Now at the time, there were two very strong. takes on this. The first held that this was some bullshit elitist art stunt. The second was that it was a perfect skewering of the way that digital and streaming has eroded musical value. For my part, I believe that it could have simply been that cash ruled everything around them. And in either case, if one thing has ever been true, it's that Wu-Tang Clan ain't nothing to f*** with. Whatever the real story is, baby Dr. Evil pharma exec, Martin Shikrelli won the auction for $2 million and took this incredible piece of culture with him in his much-hated hands.

Starting point is 00:01:42 Now, for those who aren't familiar with this comic book villain, he was a hedge funder and pharmaceutical exec who acquired a drug called Deriprim, which had an expired patent but no generic version. This drug was used as an anti-malarial and an antiparic drug and was used treating both AIDS-related and non-AIDS-related toxoplasmosis. After his firm bought this drug, they jacked the price from $1.30 a pill to $750 a pill,000 dollars a pill overnight. It's way beyond the scope to dig into all of the elements of this here, but the key thing, again, is that it was a bummer that this piece of culture was hanging out with

Starting point is 00:02:16 Richie Rotten. Anyway, in 2017, Martin was convicted of securities fraud and sentenced to seven years in jail, where, as part of the conviction, he was ordered to forfeit $7.4 million in assets. When he didn't have the cash, he had to give up everything, including a Picasso, and, of course, once upon a time in Shaolin, the Wu-Tang album. Fast forward to July of this year. News broke that the U.S. Marshals had sold the album, but we didn't know to whom until this past week. Turns out it was Pleaser Dow.

Starting point is 00:02:51 Who are Pleaser Dow, you ask? Well, let's read their about page from their website. Pleaser Dow is a collective of defy leaders, early NFT collectors, and digital artists who have built a formidable yet benevolent reputation for acquiring culturally significant pieces with a charitable twist. Since the Dow purchased its Genesis piece, People Pleasers Uniswap V3NFT, the Dow has evolved and elevated its mission to collect digital art that represents and funds

Starting point is 00:03:14 important ideas, movements and causes that have been memorialized on-chain as NFTs. Pleaser Dow has set a precedent for bidding on unique pieces, many of which have powerful messages that transcend crypto. Dubbed as an art-collecting empire, the Dow is experimenting with novel concepts in digital and community art ownership. Its members are exploring ideas, such as fractionalizing iconic pieces to be distributed to and owned by the community. However, beyond just shared ownership of these pieces, the collective plans to apply creative innovations within Defi to add and disseminate value. In a way, the Tao is a platform for collective experimentation at the nexus of community

Starting point is 00:03:50 ownership, defy, and digital art. In essence, the Tao's modus operandi is to buy and fund culturally significant pieces and then create something fundamentally additive to the soul of the piece before sharing it back with the community. Now I imagine this is starting to make more sense. NIDIG sponsors this podcast and they also put out a really good newsletter, focused purely on Bitcoin. If you want insights into what's driving market moves, regulatory changes, and the metrics that deserve your attention,

Starting point is 00:04:24 sign up at NIDIG.com slash NLW. That's NYDIG forward slash NLW. Here's what Jemis Johnson, the chief pleasing officer, said about this purchase. This beautiful piece of art, this ultimate protest against middlemen and rent seekers of musicians and artists, went south by going to the hands of Martin Shackrelli, the ultimate internet villain. We want this to be us bringing this back to the people. We want fans to participate in this album at some level. This has won acclaim even from Dow skeptics.

Starting point is 00:05:02 Josh Cincinnati tweeted, This is the greatest thing a Tao has ever done and likely will ever do. But it does bring up a question, which is technically the topic of LRS for two. today. How you do business as a DAO. Now, this is a legal perspective, and so some of you might not normally expect to hear this on this show, but it kind of cuts to the heart of what it means to be a DAO. Is it some new legal organization? Is it really just a different type of LLC? These are the questions explored on this op-ed, how to do business as a DAO that was written by Jason Gottlieb, Daniel Isaacs, and was published on CoinDesk. Every organization of any kind is organized in some way.

Starting point is 00:05:41 So-called decentralized autonomous organizations, DAOs, are a new and different kind of organization, a collaboration among people in which members' ownership, management, and control are automated based on software. Corporations are organized under the laws of a specific jurisdiction and require human involvement in their governance. Dow's, however, operate under a transparent set of software protocols, a pre-agreed set of governance rules maintained and executed on a blockchain, that allow a distributed group of individuals or entities to self-govern. As a result, a Dow can function on a distributed basis with no central authority or decision-maker. While the law has long imposed the useful fiction of personhood on corporations, allowing them to sue or be sued, enter contracts, and offer its members' protections against liability, DAWS do not yet enjoy these privileges for the

Starting point is 00:06:25 most part. The clash between the growing popularity of DAWS on the one hand and the lack of legal protections and practicalities available to them on the other, present DAWS, their lawyers, in the courts with a host of execution and analytical challenges. It will be vital to address how Dow's can participate in traditional commercial arrangements, higher service providers, resolve disputes, utilize U.S. courts to enforce their rights, defend against lawsuits, limit the liability of their members, and partition assets among other legal issues. This article addresses two practical problems that DAO's face. How a Dow can enter a commercial contract and how a Dow can engage in direct legal counsel to assist it in doing so. Legal Recognition

Starting point is 00:07:03 Without formal legal recognition, a DAO lacks a legal form with which to enter a contract like a traditional commercial enterprise. While a Dow may pass a governance proposal authorizing an individual to enter into a commercial arrangement on the Dow's behalf, and concomitantly funding that arrangement, the representative appointed by the Dow might not automatically enjoy the limited liability that a corporate officer does. There is a risk the Dow could be considered a general partnership or unincorporated association. This might expose its members to personal liability for any of the Dow's actions or obligations, and discourages businesses, institutional investors or other vulnerable or regulated entities from participating in DAOs.

Starting point is 00:07:38 Members of the DAO may also be unwilling to undertake responsibility to contract on behalf of the Dow for fear the law would impose fiduciary duties upon them or that their own assets would be put at risk. One solution is for the Dow to authorize through a formal governance vote, an individual or a group of individuals, to create and capitalize a traditional corporate entity for the limited purpose of entering a corporate arrangement on behalf of the Dow. Nevertheless, such a bridge entity is inefficient, cumbersome, and sacrifices many of the key benefits that make Dow special. Instead, Dow should, like other types of business associations, be free to enter into a contract directly, either through delegated authority or by passing a formal proposal. To the extent, applicable state law would not permit a Dow to enter a traditional commercial

Starting point is 00:08:17 arrangement without sacrificing its member's personal liability, the law should be updated. A few states have already begun to do so. Vermont, for instance, permits Dow's to register as blockchain-based limited liability companies. Wyoming, too, recently passed legislation providing liability protection for Dow members who organize as a limited liability company in the state. We believe these trends will attract business and promote positive business policy, and additional states should follow suit to eliminate the uncertainties of contracting as a Dow. For lawyers. The retention of and relationship with legal counsel also presents serious challenges for a Dow. For instance, while a Dow may pass a governance proposal to engage its selected

Starting point is 00:08:53 lawyers, the Dow must be able to effectively and nimbly direct its counsel on a day-to-day basis, receiving reports from legal counsel, and preserve the confidentiality and privilege of attorney-client communications. The solution here is likely delegation. In our experience, the most successful relationships between Daos and their counsel are structured arrangements whereby the Tao passes a proposal to retain its chosen counsel, and delegates the scope of decision-making, reporting, and communicative responsibility to a particular member or group of members. In such circumstances, though, special attention must be paid by the Tao, its legal delegates and its counsel to protect the confidentiality and privilege of attorney-client communications. Concerns that

Starting point is 00:09:28 are a topic worthy of their own article. A DAO is, like other entities, a useful tool to allow a widely dispersed and multi-jurisdictional group of individuals to privately and efficiently order their business arrangements. While blockchain-based governance is rapidly expanding, the law has been slower to catch up. This should not discourage DAO's from participating in traditional commercial arrangements, exercising a right to legal counsel, utilizing U.S. courts, and enjoying access to a variety of otherwise readily available financial and business resources. Through consultation with experienced counsel, DAO's can work within existing legal frameworks while preserving their innovative technology solutions and adapt to changing legislation

Starting point is 00:10:01 or regulations. Now, I think what's interesting about this, obviously, is that a Dow has bought something from the government. Clearly, there is going to be an interaction between this very new type of organizational form and old types of organizational form. And the question is, what sits at that hinterland? What is the thing that makes movement across the meniscus work? Lest you think that everyone involved in Dao's is just viewing them as an alternative approach to forming an LLC, I wanted to share a quick thread from Red Phone Crypto, who writes, used to think Dow's were challenging LLCs and corpse as the next model for human cooperation.

Starting point is 00:10:36 Still believe that to some extent, but that definition is limiting and boring AF. I'm a contributor and member at multiple DAWS and believe more every day they're changing the fate of the species. Dow's make it simple to marry your passions and your work. Dow's equal passion plus pay. But even typing that makes me feel like a cheap bastard. When you're doing something you used to do for free, and suddenly you have the means to pay your bills thanks to those efforts, your spirit comes alive in a very different way. You feel like Tony Robbins might after smoking a hookah full of Adderall. It's just fun A.F. I look back at my corporate life and see a sock puppet in khakis. Sure, I did things I enjoyed

Starting point is 00:11:10 and I learned a lot, but ultimately I was a cow making milk for some fat-ass farmers who already had too much milk. Payments, finance, and defy was step one in the crypto revolution. Step two are Dow's, NFTs gaming. They're the great houses being built atop the foundation laid by financial primitives. They're the layer beyond finance. They are where we can take all the cool financial concepts and start merging them with the soul. Sure, a financial revolution is fun, but it's a lot like starting PayPal. You do that, you make some money, and you get TF out of there. Ultimately, DAWS could allow most humans to combine their loves with the ability to feed, shelter,

Starting point is 00:11:42 and cover their privates with cloth, and they will have a power and stickiness that's virtually unimaginable to the uninitiated. We will form relationships with like-minded people that are deeper than they ever could be with our neighbors or coworkers. The relationships will help us grow into our strengths. they will push humanity forward. They will make work, not work, but life itself. Listen, if Sundays are for anything, they're for optimistic takes, and you can't end a show that started with a group of crypto D-Gens buying a Wu-Tang album back from a disgraced pharma executive hedge funder

Starting point is 00:12:12 on anything other than an extremely positive note. Until tomorrow, guys, be safe and take care of each other. Peace.

The Breakdown - The US Government Sold a Wu-Tang Album to a DAO for $4M

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.