# How Decentralization Enables Compliant Fundraising

- Channel: [Dappcon](https://streameth.org/dappcon)
- Date: 2025-06-17
- Duration: 20:05
- Watch: https://streameth.org/watch/6851666f4ac43bf73da5c23b

## Description

by Christoph Jentzsch

## Transcript

Okay, thank you very much, it's great to be here again, I think I've spoken at almost every DEF CON so far, but slides are changing and we are developing, so I will today present about tokenize it, and the topic is today about how decentralization enables us to do it. But I will show you how the solution we have built is compliant, and there's a list of licenses we don't need. But in the beginning I will give you a short overview and journey about where we come from, what we have built, and then I will get into the topic of compliance and licenses versus decentralization. So in short, some people know me for the DAO, my work at the Ethereum Foundation in 2014, I then created Flockit together with my brothers Simon and Stéphane Touar. We did a project called the DAO, I think most of you know about the story, this was the first big fundraising on Ethereum, raising about $150 million. You know it went wrong, today we have Ethereum and Ethereum Classic, which is not the topic, but what happened afterwards? So after the DAO, there was this ICO boom, billions of dollars have been raised, and the experience from that was very problematic projects often, meaning many ICO scams and so on, but the fundraising process itself was very nice, meaning it was very easy to invest, you could see on-chain, the market cap, how many tokens were issued, often you can immediately trade those tokens on decentralized exchanges and others. So the fundraising experience was great, there was big legal uncertainty, and of course, way too many ICO scams. So what happened afterwards? Well the BaFin came, SEC came and said you cannot do it like this. So then the work started with security tokens, some successful, some not, and when I started working on this in 2021, which is actually very late for security tokens, a lot of learnings had already been made about what not to do. The time is not enough to go into this detail, but we took those learnings and we wanted to avoid that companies or startups have to create an offshore entity to get going, like do it in, I don't know, Cayman Islands or some other countries. We wanted to make it work for German startups using a German GMBH. So we worked with lawyers on creating the GMBH token. So the GMBH token, as the name says, is focused on the German GMBH, also works for UT, also works for Austrian GMBHs, and makes it possible to have an ERC20 token, which is representing one company share. So how did we do this? I have one slide explaining the effect of this. So if you create a company in Germany, you have to go to the lottery and then there are some shareholders called Gesellschafter, and there is a Handelsregister, which is a commercial register, where you can read who owns how many shares. So if you have a company, in this example, we have two founders and there are already some investments or some business angels. So you have an existing cap table and we do not touch the existing shares or that you have to go to a lottery for any of this. So slides are disappearing, but I can continue. So what we are doing, we are issuing so-called virtual shares in the form of profit participation rights. So the German word for this is Genussrechte. So this is basically a contract between the investor and the startup, saying that they will participate in the payout of dividends. So payout of dividends, payout of exit proceeds, even liquidation proceeds. So every time a shareholder gets money, a token holder gets money as well. In exactly one token, one share. So the amount of euro per share a shareholder is getting is the same amount a token holder is getting per euro. So can you go to the next slide? So it's not directly connected, right? Okay. Okay, this was the slide. So again, you have those tokens, which are one token economically equal to one share, and you can issue them on a platform to VCs, to business angels, retail investors or employees. So the difference is now, you can do continuous fundraising. You don't need to have a pre-seed seed series A, B, C, D, and organize a round. You can still change valuations, which can be compared to rounds, but you can continuously have an invest now button on your website and get those investors in. So what are the applications now of this legal framework, which is a GMBH token, and technically it's an ERC20 token on Ethereum or Gnosis. So if I describe my startup in one sentence to someone who's not, doesn't know anything about crypto or blockchain, I'm just saying we give your company an invest now button that works. So you can put this button on your website, and depending on if you're on private or public fundraising mode, people can either invest directly or just request to invest. This is a private offer mode. Then you can decide if you want to make them an offer or not. So this is the invest now button, and as I said, there's private and public offer mode. Private offer in Germany means if you make this offer only available to less than 150 investors, this is considered private. This means you don't need any prospect, you don't need a broker in between, you don't have to do video events and all the other stuff. So it's extremely simple, meaning if you find at a conference a business angel who wants to invest in your company, you can over our platform send him a link, and with this link he can execute his investment. And in the link, when he opens it, he can find his offer, which is personalized only for this investor. That's the difference to public offer. So for public offer, here we do need a broker license, which we have through a liability umbrella, and you can raise up to 8 million euros per year in Germany without needing a prospect. You need something which is way less effort. It's called a key information document, in German, Basis Informationsblatt. It's a three-pager, which basically has all the risks and the information about investment in the document summarized. But we give you all this data and all the documents as templates, so you can fundraise in Germany. A little bit like the ICO days, they can just click and invest starting with 50 euros. They can pay with monarium, euro-e stablecoins, or they can also just do a Zipar transaction and invest in your startup. So now we're getting to the... So this was the explanation of what we're doing, very short. And now what's about compliance and how is decentralization helping with compliance? So if we would do everything ourselves as a service, centralized on all servers, we technically would need a custody license, because we would hold those tokens, which are securities. We would need a broker license ourselves. If it's not directly done between investor and founder, but through us, this would mean we are a broker. We would technically need a payment provider license if we would channel the money or holding money of one of our users. And secondary market, which is not built yet, but if we would do this also on our own, we would need a license for having a multilateral trading facility. And we don't have any of those licenses. We do have a broker license through our liability umbrella, so not directly as a tight agent. We need this for public offer. But the rest of this, we don't do ourselves. So how do we solve those issues? So first, wallet infrastructure. Our customers currently are non-crypto people, meaning they don't have any idea about a wallet. So what we do in the backend, we are giving every founder and every investor a NOSIS safe, which is a two out of two safe, or what you think, plus a recovery key. So there are two signers plus one recovery key, if you are familiar with how safe works, this recovery key can basically challenge the safe to exchange keys. If the keys veto against it, it can do nothing, so it has no control over the assets as long as those two keys are active. But if one of those keys are lost, the recovery key can help recover the wallet. The crypto native users, they can then, in our platform, add and remove keys. So they can take out the existing ones and just add their own, so they can make it fully self-custodial without any external service provider. So this means for crypto native it works, but for non-crypto people, they are actually having this set up. Key number one is the key issued by the Previ wallet infrastructure. So Previ, if you are Apple and others, so it's a very, very easy log in. Just type in your email or log in with Google, and in the back end, Previ generates a two out of three multi-safe, they're using Shamir Secret Sharing for this, and Previ is also non-custodial, and none of this is on our servers or platforms. So we are not holding any keys. So we are purely non-custodial, which is very important. So key number one is Previ. Key number two is there's a service provider called Tangany, they are a licensed crypto custodian, and they are purely API based. So those are the two keys. So for crypto natives, they could technically kick them out and replace it with their own keys, or just keep one of them. For non-crypto people, this is a perfectly fine set up, a non-custodial wallet, where they don't have to rely on Previ or on Tangany, so there's no single point of failure, but there's still the ability to recover, and they have an easy log in. So all the check boxes are picked, what we needed for our platform. So this is the first very important infrastructure, so we don't need a custodian license. The second is, depending on if you're raising in a private mode or public mode, but I'm going to focus now on the private mode. The private mode in our case is technically a white label solution, where the investor doesn't even feel they are on a tokenized website, they are seeing your colors, they are seeing your Impressum and your privacy terms, so they feel like they are on the website of the founder, and so it's a direct offer from the founder to the investor, and we are just a technical service provider, that's why we do not need a broker license. So the private offer is also by far our most used product, we have now more than 300 private offers closed, with a volume of about 8.5 million euros, so it's what startups have raised using the private offer feature. Public, that's why we cannot do this, here we have to act as a broker through our liability umbrella, here it's a little bit different, but for private, we don't need a broker license. Because we can do it peer-to-peer, this is also only possible because both sides have a wallet, and they can directly exchange money and tokens, which is not going through us. And the third one, which is super important, is using a stablecoin. You're using the Euro E from Monerium, you're using this for the public offer product, and in the end I will give you a very short demo about how this works. But this means as a direct payment in Euro E from the investor to the founder, what is very nice about Monerium is the SEPA integration. So what happens, I will show you in the demo, when the investor comes in a public offer, goes through a KYC process, in the backend, you're giving this data with the consent of the investor, to Monerium, they are generating a Monerium account and generating an IBAN. And they're using this IBAN, so the investor, when he invests money using SEPA, because he doesn't have a wallet, has no clue about crypto, he's doing a SEPA transaction actually to his own IBAN, so the bank is not asking any questions because he's sending money to himself, and once this is done, Euro E gets generated, and this Euro E is in his wallet and he knows it's safe, we can get an allowance to push this through the crowd investing or public offer smart contract, and in the end, it ends up with the founder. And we don't pay any fees, Monerium is completely free, and it's an instant settlement because there's supporting of SEPA Instant. So in summary, KYC of the investor, investor gets the IBAN, transfers Euro to SEPA transaction, his own IBAN, and then receives Euro E in his own non-custodial wallet and can then use this to do the investment in the startup. So with this, we do not need any payment provider license because we are not a payment provider. Last but not least, we are currently working on a decentralized exchange for those security tokens. There are some examples already there, there's Swarm.com and Aseterra, they are live. They're also working in a peer-to-peer mode, so people can exchange the tokens or buy and use the tokens they bought. So now I want to do a little demo, but for this, my laptop needs to be connected. Can we give it another try? It would be great. I can unplug maybe the USB. Yeah, now it works perfectly. Thank you very much. So what is happening here? This is our website. If you click on the Invest Now button, there's a little pop-up where you can either just do a non-binding register as an investment interest, this would be the private offer mode, or you invest now directly. Let's click Invest Now. So you have one page here describing the company, you can scroll down and download the pitch deck, the legal docs, get all the information you need. If you have more questions, you can also contact the founder. Once you're convinced and once you say, I want to invest, you click the Invest Now button, here you have this premium pop-up. So I'm logging in just with email or Google. You could also continue with your own wallet, so you can, of course, use any wallet you want to. I want to showcase now what most people do, which is logging in with Google. So there would be a first-time user that would be now the safe generated. I'm here for the second time, well, actually more than the second time. So what you now don't see is normal users would now go through a video event. This is skipped. What also normal users would do, you would ask them a handful of questions about if they understand the risks, which I already did, so this is skipped now, those two parts. But the rest is still the same. So I could say now I'm investing, let's say, 200 euros. Continue. So what happens now? The KYC data, which was collected earlier, goes to our liability umbrella considers. They are checking if I'm not on any, like, blacklist, anti-money laundering, and so on. So then this information goes to Monerium. So they see that they already created a bank account with me, or a Monerium account, to be more precise. If I would not have an account, they would create a Monerium account with me. Then I can choose the recipient. I'm choosing the tokenized safe, that's how it works, with the preview and the Pangea key as the two signers, and the recovery key. But you technically could use the one they signed up with. They can add any wallet to receive the tokens, of course. And then they get the summary, which is a little bit hard for you to read, maybe, about how much you want to invest. I can choose bank transfer here. If I would have euro-e in my account, it would auto-detect this and use the euro-e in my account. But I want to show you how easy it is for non-crypto users. So if I say this is fine, I approve. What happens next is, this is actually my Monerium account. So I need to fund this with at least 200 euros. So what I'm doing right now, I'm opening my traditional banking app. So let's see how quick this goes. So, and say I want to do this transaction by just scanning the QR code. Let's do this real quick. Yes. So I'm now transferring face ID, phototime app, traditional banking. So now I initiated the 200 euros transfer. Let's see how long it takes until it's here. So it should be a couple of seconds that Monerium receives the 200 euros and is minting 200 euro-e. That's what's happening in the backend now. So we have to wait. Now it's there. So now it received 200 euros on my account. You can also see this here, my balance. And these are already approved. It's now on the Gnosis chain. I already gave an allowance that those 200 euro-e are transferred to the company and tokens are issued into my safe. So this means now in the end, for non-crypto user, they can just come there, log in with Google, get the security of a safe, do a Zipar transfer with their banking app, and in the backend are using euro-e, everything is happening on chain, and execute an investment. So that's in the end what we have built, making it super simple to use basically those crypto whales. And only because we are using Monerium and those Gnosis safes and so on, we do not need a payment provider license. We do not need, for the private offer, a broker license because it's peer-to-peer. And we also don't need a payment provider license. So this is what I wanted to show you and now I can track all the investments I have done here, which of course is just some test investments in the company. Okay, that's it. I hope you learned something and now we have some time for questions. Thank you. All right, we have time for one question. I see a hand there. Yes, thanks for the talk. With your regulatory experience, do you see any path forward to allow decentralized crowdfunding for non-profits, cooperatives like GOG or GmbH? I'm not aware of any platforms right now, to be honest. So we have focused on solving it for one platform, maybe it's only for the GmbHs. We are looking into other countries and also in other types of legal entities, but currently we are not doing non-profits. But there is one, something was next, I forgot the name, but they are not doing it on-chain. It's just like normal crowdfunding platforms for non-profits. But I have not heard, there might be some, maybe even in the room, somebody knows someone. Can't tell you, sorry. Cool. Thank you so much, Christoph. Thank you, everyone. Thank you very much.