The Pomp Podcast - Adi Sideman, CEO of YouNow: The Future of Crypto and the SEC

Episode Date: July 26, 2019

Adi Sideman is the CEO of YouNow. In this conversation, Adi and Anthony Pompliano discuss creating incentives using tokens, how to build crypto products that people actually use, what went into gaining Reg A+ approval, and where YouNow goes next. YouNow SEC Offering -----If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe.This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Ade Seidman is the CEO of YouNow. In this conversation, we discuss creating incentives using tokens, how to build crypto products that people actually use, what went into gaining Reg A plus approval and where you now goes next. I really enjoyed this conversation and I hope you do as well. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion

expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy but only as an expression of his opinion this podcast is for informational purposes only all right guys bang bang i'm here with audi i'm so excited to uh record this um he has a pretty unique perspective uh being one of the first uh projects to go through and get reggae plus past their offering, passed by the SEC. So thanks so much for taking time out of your day to come on and record this. Of course. Thanks for having me. Sure. Let's just jump right into your background so people can understand your perspective before we get into some of the more fun stuff. Absolutely. Just a quick note before we start, part of our qualification with

the SEC, there's a link in the notes of the podcast so that people can review the offering circular and we just need to inform folks since it is qualified so thanks so about me i've been in interactive video and user generated video my entire adult life i started creating interactive installations in the early 90s when you had to do it on very large laser discs that look kind of like lp uh lps on on hypercard um then in the in the mid 90s um there was a thing called enhanced cds these were basically cd-roms that um had games on them and uh different uh interactive experiences and so i would do that for uh recording artists like nine inch nails Marilyn Manson and others. When folks stuck their audio CD in their hard drive, this was before the

internet, they could have an interactive video experience about the artist, et cetera, and interact with it. When the web came about, people were pointing at those video mixers that I was doing on uh cd rums and and asking hey adi can can you do that on the web and uh the challenge then was just to make it a stream fast enough because you know we're talking about on 98 with very low bandwidth and so um i engineered a bunch of these um games i did the game for the movie the matrix um hbo the sopranos then i co-founded uh the world's first online karaoke uh k solo Karaoke, which was sold to Fox Myspace at the height of Myspace, worked on stuff like Elf Yourself, which my former company that I ran still does every year.

It's hundreds of millions of user-generated Elfs are created every Christmas. And so basically anything that consumers can easily create and share. And the focus was on empowering consumers to become media creators and communicators. And in that sense, live and live streaming was a sort of a holy grail in a sense that you didn't need to edit anything. You didn't need to upload your photo into anything. You didn't need to send anything. You just needed to click a button and all of a sudden you were a publisher. And so as soon as, you know, bandwidth in the world and in the cell world and CPUs were strong enough, started YouNow, the first mobile live streaming service in the U.S.

and um you know we we very quickly learned that content creators uh were uh creating great content and they were looking to spend more and more time on it and the only way they could spend more time on it uh was to earn and uh so that they can open up more of their day so they can get better lighting so they can get better equipment um and that leads us directly to a digital currency which is the topic of the day. Got it and so when you first started looking at the digital currencies and building you now what was that initial problem that you really identified and said hey if somebody can solve this there's going to be a massive value creation? Yeah so it was really one thing leading to another and very organically developing and when we first introduced

a two-sided market for digital currency where viewers and fans and supporters can buy into a digital currency, a non-crypto digital currency. This is back in 2014. And then content creators could earn from it. It was extremely innovative and nobody was doing that, certainly not on apps in the Apple and Google store in the United States. And so we've sold $70 million worth of that non-crypto in-app currency. And, you know, what we learned from that, besides becoming, you know, very proficient in managing a digital economy, is, you know, we would have content creators come to us and say, you know, Adi, you're going to be a tech millionaire.

there and i get you know a few thousand dollars in the end of the month but but i spend my entire day and i bring you know thousands and thousands of new registered users can i get some stock options can i have an upside here and you know we we it was not in the cards as you know as a venture-backed uh relatively small company to figure out how to do that at scale but it stayed with us. And when Ethereum reached a level where we could, you know, practically build on it in 2017, we were very, very excited to find a way to provide our users not just a utility, but also this financial stake, this security, this potential upside to help create loyalty and alignment between the founders, the investors, and the power users who contribute value to the network. And as we were building it over the past two and a half years, it was very clear that the opportunity was much bigger than to do that just for a single app.

And so we build it from the first moment as a set of open source tools that can be adapted by any app that wishes to reward its users with both a utility and a potential upside in the financial stake in the larger network. Got it. And so maybe walk us through how you guys structured the offering, why choose Reg A+, and what that process was like to go through with regulators. Sure, sure. So we did a Reg D mostly token sale back in the end of 2017. And we were hoping to immediately launch the network to our end users within a few months. And we were working very hard to be ready to do that in the first half of 2018. And what we were seeing in the market and listening to the guidance from the regulators was that by allowing our end users

and the end users of other partnering apps who are coming in to effectively be earning sweat equity for their work, for their content creation, for their curation, for their financial support of the network, et cetera, that would be considered a security. And so very, very quickly, we wrapped our head around this animal that is both a utility and a security and started working with lawyers in the middle of 2018 in order to qualify with the SEC under Reg A+. Reg A-plus is, let's say, an IPO, a mini IPO it's considered to be. It's up to $50 million worth of equity being dished out to the market every year.

And some of the reporting requirements are lesser than a full S-1. And so we are very happy that last week, within a matter of 24 hours, both Blockstack and us were the first in the world to be approved by the SEC. Got it. And so where do you go from here? So the focus is dual. First of all, we have a community of 47 million registered users on YouNow, and they don't know anything about crypto. But what they do know is that they want to unlock special features, that they want to get a higher daily stipend of bars, which is the in-app non-crypto currency, that they may want discounts when they buy stuff, that they may want in the future a higher revenue share

when they work and publish content. And so our focus and our challenge there is to gamify the experience to a level that any end user can appreciate it, can understand it intuitively. And then in the end of the day, if they click a bunch of clicks and they can connect a crypto wallet,

And either liquidate their crypto in the future when ATS's alternative trading systems come online and allow that, or see the balance of the value of this token in real time, then that is, let's call it the cherry on top of the cake. But the cake needs to be a utility that drives demand for the token and intuitive demand and in the future, a desire to hold the token and not liquidate it because of all the benefits that you're getting within the app. The second dimension of what we're focused on is adding additional apps into the props network. And they're very happy to say that we have already four different apps, all of them multi-million user apps. One is XSplit, which is a gaming streaming, very hot space app that we just announced last week with 13 million registered users. Another is PalTalk. And now we're starting to focus also on non-video apps, because the reality is, is, you know, the entire Internet is full with two sided markets and economies where power users, regular users, gig economy drivers like Uber and Airbnb, YouTubers, to medium. The internet is full with the issue of I'm spending so much time, I'm contributing so much value, where is my potential upside? And this can become a competitive advantage

for the companies and the networks that are able to offer that. And so our focus now is to expand beyond video and to talk to as many potential apps to join the network and use the plug and play tools that we have created. And so if I'm one of those app developers, what's the value proposition to me? So if you think about it, you're probably thinking about or have some sort of loyalty points. And those loyalty points do what they do. They give you status, they may give you a freebie, they may give you a discount, etc. Here, we're talking about taking the same exact loyalty points that you've built and transforming them into crypto points. And those crypto points have an extra bite.

But byte number one is they have an equity-like value in the world. You can track their value moving based on the success of the greater network and the success of the app that you are on. That's one. The second is that they, and again, that's not yet today, but coming up, have the potential of being liquid when they are connected to an exchange. And so the value proposition for an app that is a good fit here is to be completely aligned with us on the network by either investing in props or applying for a grant of props. and starting to reward their users for the most valuable actions that they need and want the users to do within their network and build a utility for them to want to hold that.

And then the partner app is rewarded based on the continuing demand that they drive. basically the hold that their users do on the token on an ongoing basis. So literally every 24 hours, the protocol checks into all of the participating apps and calculates how many crypto wallets are connected through each app, how many of them have been active in the past 24 hours. It calculates a proxy for the demand that that app is driving into the network. And that app then is effectively mining the tokens off of the protocol and deciding how they wish to reward their own users based on the goals and the incentives that they have set. Got it. And so I guess, you know, one of the, if I play devil's advocate, one of the attractions that's very popular for most of these utility type tokens is, well, that's fine. That's the use case, but you don't need a blockchain for that. Right. How do you kind of think through the underlying technology of using a token, you know, incorporating a blockchain, the pros and cons or the benefits and kind of that analysis that you did to make those decisions? Of course. I mean, I would not be able to build a network of apps as we have done and continue to do if I was able to print more tokens at will.

There is economic design here and a token economics that is very clear to any participating app, that is transparent, that is validated in the public, whereby we don't have control over this decentralized economy. um and if uh and so that is a critical uh point for us in building this uh this economy and we could not have done it without the blockchain i see and so what's been the reception from apps as you've talked to them is it something where um they immediately see the value and they want to jump on board there's kind of uh hesitant optimism just kind of talk me through some of those early conversations on the business development side as to people who might not be in the blockchain space, but have these loyalty or rewards programs and kind of how they see this fitting into their plans? So it's a great question. And it's actually

a fascinating conversation because they are all intrigued by definition. They all hear from their colleagues and from their friends and from their children about crypto. They're all, 90% of the population is not sure what it is. And so the exciting part is that they're all open to a conversation because they all want to learn. And once they start learning, they understand that this is a revolution. This is different than how a business was done up until now. And at the same time, it complements everything that they're doing and provides them with the extra power to dish out effectively a stake in the network and equity without diluting themselves and by them continuing to mine from the network.

And so, the conversations are long-term. They tend to be long-term. It is the early adapters and innovators and the 10% of the CEOs who are crypto-savvy immediately get it and uh things move faster and that's why we have you know four apps on the network and not 40 but uh you know with every month that that moves uh we hope and expect to have more got it and what does this look like in a steady state right so you go and you get hundreds of applications on what does that look like and how does that change um the product over time so um So it is, in the end of the day, a portfolio. And that portfolio of who is part of the network should be decided by the participants on the network in order to create a stable and growing ecosystem and a stable and growing token if we do our job right.

And so I would say that steady state is dozens of apps in the first two years and who are mining the token off the network, who are rewarding their users, and who are seeing value from the loyalty that it drives to the users. And part of it is also, you know, education in the market because, frankly, you know, nobody has done it before. I see. And so as you're looking at this, what's your take on Libra, Kik, some of these other products that people are trying to build, whether they're big, large social media giants or just other social applications? How do you kind of see the landscape? So first of all, I was ecstatic when Libra was announced. This is exactly what the market needs in terms of bringing blockchain into the mainstream and educating the general public and the general business leadership here and around the world about the value of blockchain. So in that sense, Facebook and their fight with Congress is doing a service.

to everyone. I think that, you know, the props and Libra are very different than non-competitive. You know, the question here is payment versus utility, is stablecoin versus a coin that is designed to appreciate. Facebook Libra attempts to create a US dollar competitor to enable online payments. Props gives users a functionality and a financial stake in the network. You can look at that as, you know, and then of course, it's a stable coin. And Facebook is designed to be a stable coin. When you go to the store in West Africa, and you want to buy milk, you don't want to pay, you know, 0.08 Libra one day and two and a half Libras the other day. While, you know, props is meant to fluctuate based on the success of the network. The, you know, the other thing

with Libra is it is announced for 2020. And props is here approved and working today on a large community. And of course, we're crossing our finger for their regulatory process that they're going through. But that's, there's still some, some uncertainty there. And we're happy to have been approved last week. Absolutely. And so on the regulatory front, what do you have to do to stay in compliance, right? Once you do the offering itself, are there any either restrictions or requirements that you have to fulfill? Yes. Basically, these are reporting requirements and communications-based requirements. So we have filed, and in our offering circular, anyone can see our financials from the last two years. Every six months,

we have to refile them. We have to report not just our regular P&L, but also the token P&L. So it's almost like double filing. And then in terms of communications, we need to make sure that when we make any forward-looking statements, it's in line with what is published by us on the SEC side. So there's a level playing field and that there are no folks, whether they're insiders or outsiders, who have more communication, and that is for consumer protection. I will say that we didn't expect, when we started the project, to have to go through this process. And the process is lengthy and very involved. But in the end of the day, part of the value that we are seeing from it is that we can be very deliberate about the value of the token. And the fact that there is not just utility, but also a potential upside, also a financial stake in the network and a security, and that is undeniably part of the value.

Would you do it again? Yes. What would be the reason why you wouldn't do it again? Is there one piece that was super painful or hard to kind of get through? Well, you know, it's only crazy people start companies and make movies and, you know, go against the odds. and it is totally a personality thing and who you are and how you want to spend your time, et cetera. So there's part of that.

There was a time in the first half of 2018 where we were scratching our heads and saying, you know, how are we going to bring this thing to market in a way that is safe and secure for us, for our investors, for our users? those were challenging times i see um before uh i finish up i always ask people a rapid fire set of questions what uh what do you think the most important company in crypto is other than your own um i love ethereum i think that uh well i i think that ethereum is a very very important company important project uh they are the first to provide uh touring complete platform, a business platform. They are at scale. Without them, the industry would be set back

some years. And, you know, it's theirs to lose. All eyes are on them and mine included. What's the one regulation you would change or improve if you could? So that's interesting. You know, going through the regulatory process, I've become an unintended expert on regulation. And the thing that struck me is, you know, how aware I was and still am about every communication that comes out of my mouth. It being super factual, you know, coaching forward any forward-looking statements, having footnotes in communications, disclaimers, so that, you know, God forbid, I don't mislead anyone. And I just run a relatively small project and the government has a whole apparatus to regulate me. And, you know, I've come to accept

that. At the same time, we have politicians at the highest level of government who lie with impunity, where the stakes are orders of magnitude higher than, you know, anything I'm doing. And so how do you regulate that? How do you protect the public from that? So those are just some thoughts come to mind when you ask that question. For sure. What's the most important book you've ever read? So I'm a history buff, and I love biographies. And I love reading stories about great leaders. And so none compares for me to The Last Lion, which is a four-volume book series about winston churchill's life and um yeah i would recommend it the last line before i let you ask me a question to end it aliens believer non-believer so you know let's

say that that aliens exist will will they find us or will we find them what do we think what do you think i think they will find us i i think that right i think they're out there but they'll find us i think so i think that to you know if you're already you know going through the the the thought process and the statistics and the infinite size of the the universe uh and you come to terms with the fact that there is something out there then probably need to come to terms with the fact that we're not necessarily the most advanced of it all and uh other folks may end up finding us i i tend to think that uh that is a very good question to ask right who finds who first is um probably has something to do with the power

dynamics of after the first interaction exactly one degree um very cool what uh what one question do you have for me to finish up so um who do you want to have on your show that you can't have nobody i think that uh i am uh of the belief that anybody in the world that i want to talk to there's a way to get to them get them to uh um come on and talk uh so let me let me rephrase it um let's so let's go with a dead person a dead person yeah who would you want to interview that you can't because they're no longer with us the really good answer would be uh satoshi which would then cause everyone to go into a maniac uh search of who am i talking about that would be dead. But, uh, if I take the question seriously, um, honestly, it's probably like, uh, I don't

know, one of my like great, great grandparents or something, you know, somebody who would be like more personal, um, and, uh, somebody that I could, uh, just ask questions about and learn about perspective and stories and things like that. Um, I tend not to, uh, get too starstruck by anybody who it's like a big name so it would probably be somebody like that who I just never had the opportunity to meet but would be

kind of full of stories that would be more fulfilling and kind of entertaining for me yeah and personal that's lovely but Satoshi would definitely be exciting for this crowd yeah

who knows maybe he, she or they are listening right never know that's right that's right share some of those satoshis absolutely all right well listen audi i really appreciate you doing this this has been a lot of fun i think that um you know it's really interesting to hear your

perspective given the reggae plus um application approval that you guys received um and so thanks so much for taking the time to uh to come on and kind of share your thoughts thank you so much and thanks uh for everyone for listening and taking the time hey everyone pop here if you like this episode of off the chain and want to help us take crypto to the top of the apple spotify and other podcast charts please do us a favor and rate review and subscribe to review simply go to the off the chain homepage scroll down until you see the five blank stars taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts i appreciate you listening and see you next time on off the chain

Thank you.