#533: JP Richardson on Tokenizing His Equity

JP Richardson is the founder and CEO of Exodus, one of the most popular crypto applications and blockchain wallets. In this conversation, we discuss the idea of tokenizing equity, benefits to a corporation, benefits to an investor, the biggest risks, and how regulators are net winners in all of this. ======================= Public Rec is the first to bring tailored sizing to leisurewear so that you don’t have to choose between comfort and style. They make leisurewear in waist and inseam sizes because they believe comfort starts with a better fit. And when things fit better, they look better. No tailors. No settling. No stress. Comfort and style, all in one. Check out publicrec.com/pomp and use POMP10 at checkout for 10% off your order. Step into a better fit today with Public Rec. ======================= As one of the largest and oldest Bitcoin exchanges in the world, Kraken is consistently named one of the best places to buy and sell crypto online, thanks to our excellent service, low fees, versatile funding options and rigorous security standards -- but this is only part of the story. We’ve been on the forefront of the blockchain revolution since 2011: http://www.kraken.com ======================= Unstoppable Domains makes crypto easier by replacing your address with [AnyName].crypto. They allow you to send and receive over 70 cryptocurrencies, including BTC, ETH, and LINK with a single blockchain domain. Go to unstoppabledomains.com and get [YourName].crypto to make your crypto life easier. =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. JP Richardson is the founder and CEO of Exodus, one of the most popular crypto applications and blockchain wallets. In this conversation, we discuss the idea of tokenizing equity, benefits to a corporation, the benefits to an investor, the biggest risks, and how regulators are net winners in all of this. I really enjoyed this conversation with JP, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Public Rec. They're the first to bring tailored sizing to leisure wear, so you don't have to choose between comfort and style. Public Rec is literally the most comfortable clothing I've ever worn.

• 0:48Anthony Pompliano?

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• 1:30Anthony Pompliano?

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• 2:13Anthony Pompliano?

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• 2:58Anthony Pompliano?

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• 3:41Speaker 01

  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.

• 4:12Anthony Pompliano?

  All right, guys. Bang, bang. I've got JP here for round two. Thank you so much for joining again, sir.

• 4:18Speaker 02

  Hey, Paul. Thanks for having me.

• 4:19Anthony Pompliano?

  Absolutely. You've got some really big news that we talked about last time that is now live with kind of this blockchain-based fundraiser that you're doing. But before we get into that, let's just quickly talk about Exodus as a reminder for those who heard the last episode or who didn't listen. What exactly is Exodus? And then kind of what's your role and what's the story there?

• 4:38Speaker 02

  Yeah, Exodus is the easiest way to manage a portfolio of cryptocurrency to send, receive. And a lot of people really love the in-app exchange inside of Exodus. And 1.3 million people trust Exodus to keep their cryptocurrency safe. Me personally, my background is in software engineering. I was born and raised in Nebraska. And we knew that to build a company in the future, we had to think about things in kind of an unconventional manner. And with a big motivation for us was really about building a future where people could have that control, have that sovereignty. Unlike that of an exchange, you know, some of the biggest companies in this space, Coinbase and Binance.

• 5:23Speaker 02

  They offer a great service to the space for sure, but you're still trusting another entity to control your money, not your keys, not your coins. Everybody's heard that, and we subscribe to that wholeheartedly.

• 5:36Anthony Pompliano?

  Got it. And so this whole fascination and obsession with design is very obvious when you use the product. It's beautiful, both in the way that the aesthetic look of it, but also in the user experience, kind of the minimal friction of the number of clicks to do certain things. Just talk a little bit about where does that obsession come from? And then how did you guys put that into a product in really an industry where it doesn't seem to be kind of the norm or the standard?

• 6:02Speaker 02

  I'm really fortunate to have met my co-founder, Daniel. You know, I've told the story before, but you know, I was, I had a previous wallet and I was pitching it to people in San Francisco. And somebody came up and like JP, this thing looks like a kindergartner designed it. And I knew that I had to find a partner that would help build a good looking product. And I found that in Daniel, who has design experiences at Disney, Apple, Louis Vuitton, BMW, and Nike, to name a few. But he, he knew, he went out and found a team that's actually even better than him when it comes to design. And it really comes from the fact of thinking of like, to create a company where

• 6:45Speaker 02

  the mainstream is going to use cryptocurrency. We've got to make this stuff easy. We've got to think how people feel about this stuff, right? I mean, so much is complicated today and it really comes back down to thinking about how a person feels when they use our product.

• 7:06Anthony Pompliano?

  Absolutely. And so the reason why we're talking today is because you guys have pursued, and maybe it was not a new way of funding the company, but definitely a different way than the traditional, let me go to venture capitalists, raise capital from them. And so, one, let's just start with like, what's the funding history of the company, Ben? And then talk me through what you guys are doing and kind of what folks that are users of the product who are interested in what X is doing, like what is the opportunity for them?

• 7:32Speaker 02

  Yes. So we're fortunate that we today are not venture funded at all. Now, we have done a couple of small seed rounds and we've raised a little over half a million dollars originally. And that was back in late 2016, early 2017. But that's all the amount of money that we've raised. And over the years, we've talked to venture capitalists and there's a lot of value add with venture capitalists for sure. But We saw a future where stocks could be put on the blockchain. And we saw that that nobody was actually doing that. And so we thought that this would be a great opportunity for us to do that. And and that's why we went down this path. It's a path where we can control our own destiny.

• 8:14Speaker 02

  And we can also empower people to use a platform where long term, the vision is that they control the stocks. You could kind of think of it like the anti Robin Hood, right? Everybody knows what happened with GameStop and Robin Hood. And, you know, that's such a crappy situation being where you feel stuck. And we don't want people to feel stuck. We want to create a future where if you have your stocks in a platform like Exodus, you could always take those anywhere else. But we've got to start to set the standards first.

• 8:46Anthony Pompliano?

  And so the whole idea here is essentially you're tokenizing equity, right? You're tokenizing equity of your business. Uh, start with regulation, right? So, uh, how is this legal? And what's changed over the last couple of months or years, uh, that empowers you to do this?

• 9:00Speaker 02

  Yes, so the S C C, uh, created what's called a regulation A offering. And and that's what we're doing. And that that was one of the biggest things that a lot of companies haven't done before. Uh, in the crypto space, there have been two previous companies, you now and Blockstack that have done this. But they, uh, they were just utility tokens that they went down this regulation A offering route. Nobody yet has actually done, uh, equity until now at this point in time. And so we teamed up with, uh, Securitize to help us out. And they are powering essentially the cap table. And it's really cool. Essentially what they have are are smart contracts that that we can use.

• 9:42Speaker 02

  And that's what helps to change the cap table based upon if you transfer stock from one person to another person, it automatically changes the cap table based upon those those smart contracts. But it's all based on smart contracts. And, uh, it was a regulation A offering that allows us to raise up to $75 million.

• 10:01Anthony Pompliano?

  Got it. And are you targeting to raise the actual 75 million or something smaller?

• 10:05Speaker 02

  Yeah, we're targeting to raise the actual 75 million. In fact, this offering just started on, uh, Thursday night at at 8:00 P. M. At Central. And to this moment in time, we have raised near 80% of that.

• 10:22Anthony Pompliano?

  With the people who have already invested, I don't know how much of this data you know, but just is it like one or two big whales and kind of they're taking, you know, 10, 20 million dollar allocation sizes? Or is this a bunch of people with much smaller denominations?

• 10:38Speaker 02

  There are certainly whales and we will talk more about that in the future. But what's really exciting about this is that 90% of the actual investors by count are all from non-accredited investors. So that's one of the most exciting things here is that this is a platform for the normal mainstream person. And that's why we see this is the future interface to what we believe will be the future of the stock market.

• 11:04Anthony Pompliano?

  Yeah, I completely agree. As we start to see more and more companies tokenize the equity, what's the impact to the market, both as the founder and CEO or executive of a business, but also as an investor? How do you see this kind of playing out?

• 11:22Speaker 02

  Yeah, I think that a lot of companies are going to start doing this because they're going to recognize that you can have, there's actually two innovations in the regulation front. There's the Regulation A and then there's Regulation CF. And so Regulation CF allows people to raise up to $5 million or companies to raise up to $5 million with very little friction. And there are platforms out there today that are offering this, but nobody has yet bundled this together with a wallet, a platform that already holds money. And so we see a future where companies are just going to, you know, sign up a few clicks, enter in information, and then your offering can go live to the mainstream public and

• 12:06Speaker 02

  you can issue your own stock and equity directly on the blockchain and give people that control.

• 12:12Anthony Pompliano?

  Yeah. What to me is so fascinating about this is what you're essentially doing is you're one, using existing regulations to give more opportunity to the average person, which I generally believe is a positive progress and kind of step forward. The second thing you're doing is you are drastically reducing the cost and inefficiencies of you as a company in terms of managing your cap table and kind of all the transfer restrictions and rovers and all that kind of stuff. But three, one of the pieces that I think people don't quite yet understand, but a couple of years ago I wrote about at this point, is that we're actually going to make it a more fair and safer market, right? So regulators, rather than having to kind of retroactively go and build cases

• 12:57Anthony Pompliano?

  and enforce on people for doing things that they shouldn't have done, now the code serves as the law. You're going to be able to prevent somebody who maybe shouldn't transfer from, let's say, a accredited investor to a non-accredited investor. The code will actually prevent you from doing all that type of stuff. And so it just generally makes it much easier, more efficient, and a safer market in the equity market, right?

• 13:19Speaker 02

  Absolutely. I mean, this should be like a regulator's ultimate dream here because it's all on the blockchain. It's all on a transparent, public ledger that at any moment in time, a regulator could pull up and look and, you know, it's something as simple as like, say, EtherScan, if we chose to go down Ethereum, the route of Ethereum, they could just pull it up and they could go line by line and look at all the transfers that have taken place. And then they could go to the transfer agent and cross-reference the records, and it's all there. It's all public. And yeah, I think this is an innovation that will be safer for both the mainstream and regulators, for sure. Absolutely.

• 14:00Anthony Pompliano?

  Talk to me as much as you can in terms about how much does this cost for you guys to go do? What was the timeframe? How many people internally were working on it? Just like if somebody else says, hey, this is, it sounds like a really interesting idea. Maybe I should do it for my company. What are some of the things that you would tell them in terms of, you know, just the investment that you had to make to actually be able to get in this position?

• 14:19Speaker 02

  So originally, we had this vision that we were going to do what we kind of thought of as a world public offering, that anybody in the world could participate and buy shares directly in the company, directly on the platform. That was the original vision. Now, we learned a lot along the way, and so we started this process. It was in May of 2020 is when we started this process. And we started learning like, okay, there are a lot of laws and regulations that we have to adhere to in different jurisdictions, and we still may actually be able to do the international component, but we're working through that right now. So, but we had to suspend that part. And then I learned there's such a thing as like even blue sky states.

• 15:04Speaker 02

  That means states like Texas, Arizona, and Florida have additional regulation in place that you have to do additional things. And to move fast, we had to not, we cannot offer those three states as well. So we learned that. So in retrospect, if we knew all of these things upfront, we would have gotten every component in place to make sure that we could do all the states and we could do international out of the gate. And so, like I said, we started this process in May. We submitted in September. And, you know, with Tesla buying Bitcoin and, you know, Michael Saylor buying Bitcoin, you know, we found out end of the year, early this year, like we got to really put the pedal

• 15:47Speaker 02

  to the metal and get this done. And, and yeah, maybe there's a little bit of friendly competition to get this out of the gate before Coinbase IPO. So we were working our tails off to get this out of the gate and happy to say that we did it. But it was a long, long process and we've, like I said, we've learned a lot and there's a lot of things that we could definitely help other companies with advice on actually making this a reality. Now, to answer your question about cost, this cost anywhere from a one to $2 million if you include marketing and legal spend, it varies.

• 16:26Anthony Pompliano?

  Got it. And so when you start to think through kind of the business in general, obviously, you've been able to tokenize the equity. You're going to put that on the blockchain and the cap table. Any thoughts around like on-chain cash flows or increasing the transparency around like the business metrics, which I think is kind of like the holy grail of a lot of these efforts?

• 16:47Speaker 02

  Absolutely. So one of the aspirations that we have as a company is to become one of the most transparent companies in the world. So what that means to us is that, you know, now that essentially we are becoming sort of like a public company. And so that means we have to put our financial statements out regularly and their audited financial statements. In addition to that, I think it's important for us to actually put out, you know, more information in terms of the business month to month, put out things like a roadmap, put out financials and metrics like that so that they're out there for the public to see at any moment in time. And, you know, maybe we've even go as far as just putting raw bank statements up on our website and people can

• 17:31Speaker 02

  see how much I love like steak and lobster or things like that, right? And so, you know, whatever it is, things like that that can really let people know like, hey, this company is very transparent in how they behave with their financials. You know, this is a company that I want to, you know, I want to use their software to manage my cryptocurrency.

• 17:52Anthony Pompliano?

  Absolutely. And so when you start to think through kind of the ramifications with these other businesses, what is going to take? Like, is there an inflection point? Is it them seeing you be successful, similar to how MicroStrategy kind of opened the floodgates for people putting Bitcoin in the public markets on their balance sheet? Do you think that once Exodus is successful here, then all of a sudden other people will run and go do it? Or is there some other inflection point

• 18:16Speaker 02

  Yeah, that's a great question. I think that there's still pieces that need to be put in place and I'll explain. So if you think back to maybe the late, late seventies and you know, it's kind of the personal computer revolution, right? In the early days, people were going to these kind of computer clubs and you'd buy like a motherboard. And then you'd have to find all the pieces to assemble the actual computer. You had to find your keyboard and the monitor and all these pieces. Nobody yet had really packaged everything up in an easy computer until Apple and IBM came along. And so that was the big inflection point in the, you know, the PC revolution.

• 18:57Speaker 02

  And for us, what it is, is that, okay, so we're, we're doing this offering, great. But we also have to allow people to actually trade the assets. So that is a big component as to what's coming. And so what we're doing is we like to think of the same thing as how I described with the, the PC revolution is we are packaging up everything in one software interface. So that people can do both the offering and then actually do the secondary market trading. And that part hasn't happened yet. But we believe that once the secondary market trading actually happens, that and other companies see like, oh, wow, Exodus has had a lot of success with this. You know, we should consider doing something like this.

• 19:40Speaker 02

  That's when we think that the floodgates will start to open.

• 19:44Anthony Pompliano?

  I tend to think that you're going to be on the right side of history here, my friend. If somebody's interested in learning more about Exodus, learning more about this opportunity, where should they go? And what will they find there?

• 19:54Speaker 02

  So you just go to exodus.com and you can just, at the top of the page, you'll see that it says, "The Exodus public offering is live." And people can click that, you'll see the progress, how far we're at. And then you can download Exodus and then you can get started. And then at that moment in time, you, if you wanted to participate, you would register with Securitize directly inside of Exodus. And it'll walk you through the process, very straightforward and very simple for people to do this.

• 20:21Anthony Pompliano?

  Yeah. What's so fascinating to me about this, and just to kind of summarize for everyone what's going on here, right, is JP and the rest of the team, they've built an amazing product, which has turned into amazing business. And what they're able to do is they're able to go to that customer base along with other folks who are not professional venture capitalists, investors, and they're able to say, listen, we've got a great business. Would you like to participate in the upside of this and do it within the existing regulatory framework? And do it in a way that is much more efficient and lower cost for them in terms of managing that cap table, it provides liquidity opportunities for investors. Like, it's just overall a much, much better system.

• 20:57Anthony Pompliano?

  And so I think that what we're watching here is not only one pioneering work by you guys, the folks at Securitize and others, but more so, I think that this just gives us a glimpse into the future, right? Of, hey, why is every company not going to do this? Well, they probably are going to do it. And so it ends up just being a matter of time before this goes from kind of a contrarian idea to a consensus idea.

• 21:18Speaker 02

  Absolutely. And Pop, I would say that a lot of companies, the reason they're not doing it today is because, to be fair, this market is still very early, very young. And so if you are a venture-backed company, totally understandable that when you go public, you need to get a return and you want to go to markets with high liquidity. And so it makes sense why companies are, you know, choosing to list on the NASDAQ and New York Stock Exchange. I get it. But given that we aren't venture-backed, we have our cap, our treasury was already, you know, we already have quite a bit of money on our treasury. We could afford to go down this path with almost zero downside if we were wrong on this. And it turns out we're not wrong on how this is going to play out.

• 22:03Speaker 02

  So, and we're going to get the liquidity going. And I think that's when other companies are going to start to see like, wow, this is a huge opportunity.

• 22:10Anthony Pompliano?

  I, again, I think you're on the right side of history here, my friend. So it's a super cool to have talked to you before you launched it. It's cool now to kind of talk to you while it's going and then maybe have to do one again, once everything's closed up to talk about how it went. Where can people find you on the internet if they want to just follow you or kind of stay close to what you're doing and thinking?

• 22:32Speaker 02

  Yeah, the easiest way is on Twitter. My handle is JP Richardson on Twitter. So that's the easiest way for people to follow me.

• 22:40Anthony Pompliano?

  Awesome. If I have to leave you with one prediction, or you're gonna leave us with one prediction, I'm gonna let you choose. Do you want to talk ETF or Coinbase?

• 22:53Speaker 02

  In terms of, so ETF happening, or what?

• 22:57Anthony Pompliano?

  So you can either choose to predict, do we get an ETF in 2021 or not? Or you can choose to guess what you think the highest market cap Coinbase hits this year? Which one you want to go for?

• 23:08Speaker 02

  Okay, you know, I'll, I'll go for both. So, yes, ETF in 2021, I think there's no doubt about that. And I say that because, right now, it seems to me, as an outside observer, that other companies are using by default, micro-strategies in ETF. And so I think, given that we're also seeing ETFs in Canada, and I think, and I think there's two in Canada, and there was one recently in Brazil, that the, the SEC, I'm just again, purely speculating here, that they're going to have to, to approve an ETF. So I think, no doubt, we see an ETF in 2021. And let's see, okay, Coinbase, market cap,

• 23:49Speaker 02

  highest market cap in 2021, I'm gonna say they, I'm gonna, I'm gonna go 200 billion. I'm gonna go 200 billion on, on that. Highest, not, not, not on the, not in the initial day. I don't know, again, this is pure, pure speculation, just a guess. You think higher? Is that what you're thinking?

• 24:08Anthony Pompliano?

  You're, you're ready? So I did this with Beeple, when he asked me what I thought his thing was gonna sell for, I was trading at 3 million, and I said 50, it ended up being 69, so I undershot. I think that there is a pretty material chance that Coinbase trades up to half a trillion dollars in 2021, 500, 500 billion dollars.

• 24:28Speaker 02

  You know what? You, you might be right, because a lot of these institutions are, are using Coinbase to actually be the custodian of, of their Bitcoin and crypto. So, uh, man, that's a bold prediction. You might be right on that one.

• 24:44Anthony Pompliano?

  We will see, we will see. All right, my friend, I appreciate the predictions. You guys are doing fantastic work over at Exodus. Anyone who wants, go check out exodus.com. You can see what they're doing with tokenizing the equity. Again, I think it's just a glimpse into the future. So even if you're not interested doing any investing activities, you should just go check it out and kind of see how everything's structured and kind of see what people are doing at the edges of innovation. But I really appreciate you jumping on today and we will have to this again in the future.

• 25:12Speaker 02

  All right, perfect. Thanks, Pop.