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

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

• 0:01Speaker 00

  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.

• 0:12Speaker 00

  Adi Sideman 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 YouNow 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

• 0:54Speaker 00

  a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 1:03Speaker 00

  Alright guys, bang, bang. I'm here with Audie. I'm so excited to record this. He has a pretty unique perspective, being one of the first projects to go through and get Reg A plus passed, their offering passed by the SEC. So thanks so much for taking time out of your day to come on and record this.

• 1:27Speaker 01

  Of course, thanks for having me.

• 1:30Speaker 00

  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.

• 1:37Speaker 01

  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 disks that look kind of like LP. Uh LPs on on HyperCard.

• 2:17Speaker 01

  Um then in the in the mid nineties, um there was a thing called Enhanced CDs. These were basically CD-ROMs that um had games on them and different uh interactive experiences. And so I would do that for uh recording artists like Nine Inch Nails, Marilyn Manson and others. So when folks stuck their audio CD in their uh hard drive, uh this was before the internet. They could have an interactive video experience uh about the artist, et cetera, and interact with it. Um when the uh web uh came about, uh people were pointing at those, you know,

• 2:58Speaker 01

  video mixers that I was doing on uh CD-ROMs and and asking, hey, Adi, can can you do that on the web? And uh the challenge then was just to make it uh a stream fast enough because, you know, we're talking about uh ninety-eight 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's The Sopranos. Then I co-founded uh the world's first online karaoke, uh K-Solo Karaoke, uh which was sold to Fox MySpace at the height of MySpace. Um worked on stuff like Elf Yourself, which my uh former company that I ran still does every year.

• 3:42Speaker 01

  It's hundreds of millions of user-generated elves are created every Christmas. Uh and so basically, anything that consumers can easily create and share. And the the focus was on empowering consumers to become um media creators and communicators. And uh in that sense, uh 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,

• 4:28Speaker 01

  started YouNow, the first mobile live streaming service in the US. And, you know, we very quickly learned that content creators were 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 was to earn and so that they can open up more of their day, so they can get better lighting, so they can get better equipment. And that leads us directly to a digital currency, which is the topic of the day.

• 5:07Speaker 00

  Got it. And so when you first started looking at the digital currencies and building YouNow, 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?

• 5:21Speaker 01

  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.

• 6:00Speaker 01

  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, D, you're going to be a tech millionaire. 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 back,

• 6:41Speaker 01

  a 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, you know, the founders, the investors,

• 7:23Speaker 01

  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 and a financial stake in the larger network.

• 8:02Speaker 00

  Got it. And so maybe walk us through how, you know, you guys structured the, the offering? Why choose Reg A plus and what that process was like to go through with regulators?

• 8:14Speaker 01

  Sure, sure. So we did a Reg D mostly token sale back in the end of 2017. And we

• 8:28Speaker 01

  We're 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 app or apps who are coming in to effectively be earning sweat equity for their work, for their content

• 9:08Speaker 01

  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+ is, let's say, an IPO, a mini IPO is considered to be.

• 9:49Speaker 01

  It's up to $50 million worth of equity being dished out to the market every year and some of the recording requirements are lesser than a full S1. 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.

• 10:19Speaker 00

  Got it. And so where do you go from here?

• 10:22Speaker 01

  So the focus is dual. First of all, we have a community of 47 million registered users on Un now, 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

• 11:06Speaker 01

  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

• 11:49Speaker 01

  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 there, I'm very happy to say that we have already four different apps, all of them multimillion user apps. One is XSplit, which is a gaming, streaming, very hot space

• 12:29Speaker 01

  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.

• 12:49Speaker 01

  With two-sided markets and economies where power users, regular users, gig economy drivers like Uber and Airbnb, YouTubers, and contributors 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

• 13:32Speaker 01

  and to talk to as many potential apps to join the network and use the plug-and-play tools that we have created.

• 13:39Speaker 00

  And so if I'm one of those app developers, what's the value proposition to me?

• 13:44Speaker 01

  So if you think about it, you are 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, et cetera. 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 byte.

• 14:23Speaker 01

  Byte number one is they have 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.

• 15:09Speaker 01

  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 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.

• 15:47Speaker 01

  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.

• 16:25Speaker 00

  Got it. And so I guess, you know, one of the, if I play devil's advocate, one of the traction that's very popular for most of these utility type tokens is, well, that's fine, that's a 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?

• 16:54Speaker 01

  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 a

• 17:13Speaker 01

  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.

• 17:29Speaker 01

  And so that is a critical point for us in building this economy and we could not have done it without the blockchain.

• 17:39Speaker 00

  I see. And so what's been the reception from apps as you've talked to them? Is it something where they immediately see the value and they want to jump on board? There's kind of 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?

• 18:04Speaker 01

  So it's a great question and it's actually a fascinating conversation because they're all intrigued by definition. They all hear from their colleagues and from their friends and from their children about crypto. They're all, you know, 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

• 18:48Speaker 01

  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, you know, early adapters and innovators and, you know, the 10% of the CEOs who are crypto savvy immediately get it and things move faster. And that's why we have, you know, four apps on the network and not 40. But, you know, with every month that moves, we hope and expect to have more.

• 19:28Speaker 00

  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 the product over time?

• 19:42Speaker 01

  It is, in the end of the day, a portfolio. And that portfolio should, 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 a 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

• 20:24Speaker 01

  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.

• 20:36Speaker 00

  I see. And so as you're looking at this, what's your take on Libra, Kik, you know, 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?

• 20:53Speaker 01

  So first of all, we were, 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 and non-competitive.

• 21:33Speaker 01

  You know, the question here is, 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 stablecoin and...

• 22:01Speaker 01

  Facebook is designed to be a stablecoin. 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 2.5 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.

• 22:30Speaker 01

  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 uncertainty there. And we're happy to have been approved last week.

• 22:52Speaker 00

  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?

• 23:07Speaker 01

  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 and L, but also the token P and 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,

• 23:51Speaker 01

  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 to, you know, for consumer protection. I will say that...

• 24:11Speaker 01

  You know, the, uh, we didn't expect when we started the project to have to go through this process and the process is lengthy and very involved. Uh, but in the end of the day, part of the, the, the value that, um, we are seeing from it is that we can be very deliberate about, um, the value of the token and the fact that, uh, there is not just utility, but also a potential upside, also a, a financial stake in the network and a security, um, and, and that is, uh, undeniably part of, of the value.

• 24:53Speaker 00

  Would you do it again?

• 24:55Speaker 01

  Yes.

• 24:56Speaker 00

  What, what would be the reason why you wouldn't do it again? Is there like one piece that was super painful or, or hard to, um, hard to kind of get through?

• 25:07Speaker 01

  Well, you know, it's, uh, only crazy people start companies and make movies and, you know, uh, go against the odds, uh, and, uh, it is, it is totally a personality thing and, and who you are and, and how you want to spend your time, et cetera. So, so there's, there's part of that. Um, there was a time in the middle of 2000, 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, um, in a way that is safe and secure for us, for our investors, for our users? Those were challenging times.

• 25:49Speaker 00

  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?

• 26:00Speaker 01

  Um, I love Ethereum. I think that, uh, well, I, I, I think that Ethereum is a very, very important company and quarter project. Uh, they are the first to provide, uh, touring complete platform, a business platform. They are at scale and without them, the industry would be set back some years. Um, and, uh, you know, it's, it's theirs to lose. All eyes are on them and mine included.

• 26:34Speaker 00

  What's the one regulation you would change or improve if you could?

• 26:38Speaker 01

  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 so, and I just run a relatively small project, and the government has a whole apparatus

• 27:22Speaker 01

  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.

• 27:47Speaker 00

  For sure. What's the most important book you've ever read?

• 27:50Speaker 01

  So, I'm a history buff and I love biographies. And so, and I love, you know, 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, yeah, I would recommend it, The Last Lion.

• 28:15Speaker 00

  Before I let you ask me a question to end it, aliens, believer, non-believer?

• 28:21Speaker 01

  So, you know, let's say that aliens exist. Will they find us, or will we find them? What do we think?

• 28:31Speaker 00

  What do you think?

• 28:32Speaker 01

  I think they will find us. I think that...

• 28:36Speaker 00

  You think they're out there, but they'll find us?

• 28:39Speaker 01

  I think so. I think that to, you know, if you're already, you know, going through the the thought process and the statistics and the infinite size of the universe, 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 other folks may end up finding us.

• 29:05Speaker 00

  I tend to think that 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.

• 29:18Speaker 01

  Exactly.

• 29:21Speaker 00

  Very cool. What one question do you have for me to finish up?

• 29:24Speaker 01

  So, um, who do you want to have on your show? That you can't have?

• 29:32Speaker 00

  Nobody. I think that I am 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, come on and talk.

• 29:48Speaker 01

  Let me rephrase it. So let's go with a dead person.

• 29:53Speaker 00

  A dead person?

• 29:54Speaker 01

  Yeah. Who would you want to interview that you can't because they're no longer with us?

• 30:00Speaker 00

  A really good answer would be Satoshi, which would then cause everyone to go into a maniac search of who am I talking about? That would be dead. But if I take the question seriously,

• 30:17Speaker 00

  honestly, it's probably like, I don't know.

• 30:21Speaker 00

  One of my like great, great grandparents or something, you know, it's somebody who would be like more personal and somebody that I could just ask questions about and learn about perspective and stories and things like that. I tend not to get too starstruck by anybody who is like a big name. So it'd 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.

• 30:54Speaker 01

  Yeah, and personal. That's lovely. But Satoshi would definitely be exciting for this crowd.

• 31:00Speaker 00

  Yeah, who knows? Maybe he, she, or they are listening, right? Never, never know.

• 31:06Speaker 01

  That's right. That's right. Share some of those Satoshis.

• 31:10Speaker 00

  Absolutely. All right. Well, listen, I really appreciate you doing this. This has been a lot of fun. I think that, you know, it's really interesting to hear your perspective, given the Reg A plus application approval that you guys received. And so thanks so much for taking the time to come on and kind of share your thoughts.

• 31:30Speaker 01

  Thank you so much. And thanks for everyone for listening and taking the time.

• 31:34Speaker 00

  Hey, everyone. Pomp here. If you liked 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.