Cooperative on Hedera! Tyler Morrey of Upside Co-op / King Solomon (Part 1)

This interview was originally published by Genfinity.

—

King Solomon interviews Upside Co-op as part of the Hedera Corner in the LightHouse by Genfinity! Brought to you by LightHouse Report sponsor Hedera Hashgraph and in collaboration with our partner and Hedera wallet provider HashPack.

Transcription

Genfinity – King Solomon – Founder & CEO
‍I wanted to give Tyler an opportunity to introduce himself, talk a little bit about his background, and kind of what got him into crypto. As well as touch base on what's going on with Pie-Fi and Upside Co-op right now. I mean, for those of you guys that aren't aware, Upside Co-op just co-authored a white paper with KPMG, which is one of the big four in the entire world as far as advisory services and everything else, as well as Orrick, which was fantastic to see. So if you could give us maybe a background of yourself and a little bit of a story about how Pie-Fi, Upside Co-op, Hashgraph name, and everything started.

Upside Cooperative – Tyler Morrey - Founder
‍Oh, all right. No, I appreciate the intro. I'd love to tell everybody about what we're doing, how I ended up doing the crazy things that we are doing in web3. You know, to start, I want to piggyback off the conversation and just say that this is what I love about this industry because it is so vastly different in how we approach things. Just from a human aspect, right? I'll do a little sharing myself, because I'm a parent, and I know we're all feeling what we go through. My two-and-a-half-year-old son was recently diagnosed with autism, and I just love the power that this space brings and the tools it gives us as people to carve out a space for ourselves to be who we are and do what we want to do. So yeah, I'll start by saying thank you, Batty, and for everything your project does for the ecosystem and for sharing. Sharing stories helps all of us learn and grow. Cool. All right. Yeah, I'll tell you about myself. So I'm Tyler, I'm the founder at Pie-Fi and Upside Co-op. You know, I come from the world of finance. Previously, I was doing valuation and consulting, specifically around complex financial instruments. Everyone is going to know maybe what an option is, right? And I did the ridiculous things that people do with options to make them even more complex and intuitive, exotic derivatives and things like that, complex capital structures. So, you know, in doing that work, I worked with a lot of startups. I'd say between me and my two co-founders, Samson and Jordan, we have worked with hundreds of startups and founders over our careers. Talking with them directly, understanding the challenges and growth trajectory looked like for their business, and understanding who owned what and how much. That's what got us started down this path, was to see how the traditional system works, who gets rewarded for that when value is created, and who actually gets to participate in that value. And it's no surprise what we learned: there's not many people who do get to participate in that value, and that's something we wanted to change. In terms of my experience with Crypto and, like, how we ended up building in the space. I've been following Bitcoin since 2010-2011. Well, before I had any capital to inject myself, quite clearly, and I've just been adjacent for a very long time. We worked with a lot of startups in the space during the ICO era in 2017, 2016 and, you know, through 2018 and later. But it really was when the focus started to shift more from open and permissionless and censorship-resistant values to focusing more on the value and the ability of crypto to achieve shared ownership. Right, that we could all participate, that it didn't matter if you had a million dollars and were accredited investor or not. Everyone could have a piece of it, and we could all benefit together. There's a lot that happened over the last few years. DAOs have been a big piece of that, bringing in not just ownership in terms of financial ownership but governance as well, and being able to make decisions on behalf of a protocol. As all of that started developing, about two years ago, we started talking about how to do something that is fair, compliant, and how to get people to own equity when they are creating the value of that equity. How do we make it easy enough, frictionless, so that it doesn't preclude anyone from being able to participate and get a piece of the value they're creating? That kind of merged with where crypto as an industry was going at the time. So yeah, two years ago we all quit our jobs, about a year and a half ago. Did something crazy, went out raised money, and here we are. Just published a white paper with KPMG. Coming from the financial world, having known who all those people were, it's crazy. It's crazy that we made it this far. Our journey into HBAR was another fun story. Getting to meet Solo Ceesay, and the Calaxy team at a local tech conference. Then getting what would we call it? What would be the color of Hbar? Black pill? I don't really know, but like really learning what HBAR was about, what Hedera was about, at a time when we were trying to select the right chain. It's just been kind of crazy how serendipitous everything has been and how it all came together. Because what we're doing with Upside Co-op is we're creating an enterprise solution. Something that is accessible to every company, something that extends well beyond Dows or cryptocurrency itself, but allows, you know, uses the tools and the mechanisms that we have to create legal compliance, shared ownership across the board for any company in any industry. And, you know, it's just it's fun to be here with everybody in the hbar community because that's what we're all about. We're actually about pragmatism and making something happen that's broadly applicable.

Genfinity – King Solomon – Founder & CEO
‍And I think, um, touching base on like the co-op aspect, I know that you know, the white paper that you guys published was extremely interesting because I think you mentioned it, you know, there's a lot of um kind of aspects around, you know, you hear Dao or decentralized, you know, autonomous organizations X Y and Z and there's a lot of projects building with that kind of mindset as far as those are concerned. But then I know if you dig into, you know, dig into the weeds a little bit, you know, there's also some potentially you know regulatory concerns around DAOs and how they're launched, potentially what they represent as well. Can you give us a little bit of a um, you had a really interesting kind of, you have like a really interesting table kind of comparing all of the ways the companies potentially launch in web 3 and can just tell us kind of how the co-op model potentially separates itself from some of these other models and what unique value propositions a co-op could represent as well as um even from the SEC standpoint because you guys have done a lot of research and kind of accumulating tons of no action letters around co-ops. And maybe just give us a little bit of an insight in that.

Upside Cooperative – Tyler Morrey - Founder
‍Yeah, no, I mean, the truth is that the, you know, the regulatory framework that everyone is trying to, you know, move in and out of to try and you know find their carve out their little niche and be safe, everything is very broad and it is, you know, put together in a way that the honest truth is that, you know, who's potentially susceptible to, you know, legal implications, regulatory implications, whose potential you know, who's susceptible to potentially being deemed as security and the answer is, if it's a digital asset, pretty much everybody. Right, there are very specific nuanced projects that that, you know, it might not apply because of the way that they structured everything. But in general, if there's a startup behind it and they've launched it, doesn't matter if they've launched a DAO with a governance token or they've launched an NFT or a utility token, there are still implications and there's still that securities risk regardless of what you know, everyone is trying to do to get around that right now. Why the co-op is so interesting is a co-op is structured to be a democratic and a more open and fair type of organization because that's the case, one could say that what that really means is that it protects the consumers; it protects the participants. And if we're gonna drill down to what actually matters to the SEC, that is what matters to the SEC. They want to see that people can be protected, right? That the way that everyone structures doesn't allow for rug pulls, right? That there's something legal behind it that protects people. That's, you know, sort of the things that they want to see. They want to know that everyone has access to information and that's what the co-op provides, right? Inherently, a co-op is consumer protection. So, you know, what that means is that the SEC, over the last 50 years and you know, based off of you know, a ton of case law, based off of many dozens of no-action letters issued by the Division of Corporation Finance at the SEC, they do not believe that Cooperative membership, Cooperative ownership, is considered a security, right? And so, you know, in the paper, that's really what this all leads to is that DAO, NFT, utility token, whatever it is, you know, there is a lot of risk inherent in what we do in this space. And by bringing in the Cooperative model, we can do two things, right? We can say, we can actually do shared ownership now in a compliant way, but also in a way that holds true to what, what the industry believes to be its ideals, right? Which is being open and fair, accessible, to be permissionless and be censorship-resistant. That is what a Cooperative allows you to do but within a legal structure. And therefore, you know, it means that you can start experimenting like we're all doing, but to do it in the right way so that you're mitigating all of that potential risk. I hope that answers the question.

Genfinity – King Solomon – Founder & CEO
‍Yeah, and I think it's also interesting, just due to the fact that you see so many kind of, and I've talked to Nate before, well, even offline for some of the Genfinity stuff and we've, I had the chance to interview Nate before as well, and you know, one of the things that was brought up is, you know, this model is not necessarily even only Hedera. I mean, it's a model that you could potentially use in a very agnostic way across multiple different ecosystems. So, I guess the question I would have like is, you know, for you guys to potentially like onboard projects that might want to pivot towards like the co-op model, how important based on how kind of on thin ice this entire space is, consistently from a regulatory standpoint, is the due diligence that you guys do with who you're working with. What does that look like for people that may be interested at least to get into a discussion with you guys around what you know maybe them pivoting their model into a co-op model would look like?

Upside Cooperative – Tyler Morrey - Founder
‍Yeah, well, I'd start off and just say, yeah, I don't, I don't even know if we necessarily need to look at it as a pivot, right? You know, honestly, what we're doing is we're just adding something to the existing structure that you've created, right? Whether or not, you know, you've done this, you know Unincorporated, and therefore you want to formalize, that's an option if you're already a C Corp or an LLC and a project, maybe you've been funded already by Venture Capitalists, whatever it is, you've already set up these structures, you've issued these digital tokens. When we step in, we're just adding something that isn't there right now. Right, the right now a token holder has no claim to the equity of the project that has issued the tokens, right. An example: if someone's trying to buy a sports team and they're selling NFTs, saying "Hey, we're going to buy a sports team together," that's not accurate. Because someone has a legal entity or a person has to own that sports team and they're, yes, they're using the money generated from the NFT sale to purchase it, but who owns it? The C Corp does, right? And the community doesn't actually own that. And you know, so what we're doing and why this is broadly applicable to any web3 organization in any ecosystem is that we're adding that layer of equity ownership that isn't there yet, right? And so it doesn't really require you to change a lot of things about your project, it doesn't really, you know, require essentially a pivot, right? It's just an addition, it's a layer of added value for the user and a layer of added value in terms of mitigating risk, you know, to that extent what is the level of diligence that you know we do on projects that we work with, you know, it isn't terribly, you know, in-depth. We want to make something that's very accessible to everybody, but also because we're not really dealing with your digital assets and so the, you know, there's a separation here where what we're really doing is we're dealing with the equity of your company. So, as long as you are a company, as long as you know you're not committing fraud, then there's a space for us to work together, and so, you know, to that extent, we want to make sure that you are actually a company, right? But other than that, you know, we can work with anybody because all we're doing is adding value to the ecosystem you're creating, we're not really stepping in to make anything need to be changed, you know, I would extend that though because I just want to hit on the point that, um, you know, what we're doing is applicable to web3, and yes, it's applicable to, you know, any project on any chain, but the important part that we see and what we're doing and why the paper was so important is, it, this paper wasn't just the first way to do ownership that is shared ownership compliantly of digital networks, this paper also represents the first model that is truly compliant that allows any startup or any corporation across the board to start sharing ownership with their customers with their stakeholders who do not normally get to participate in that ownership, so you know, I do want to just hit on the fact that this is, you know, we're starting with web3 because everyone in web3 already believes in that same ethos, but you know where we're at, and it turns out after the paper, we've been very surprised with the level of receptiveness that we've gotten in the traditional business space, in the traditional financial system. That you know, this transition is actually happening much faster than we thought it would and it is becoming something that is applicable across the board and not just in crypto.

Genfinity – King Solomon – Founder & CEO
‍Yeah, I mean, I want to ask both of you guys about, kind of what you guys were looking forward to in 2023 as far as you know, as far as Batty and the robot you guys have coming up, as well as you guys upside. Can you touch on that? And I totally forgot to even ask that, so I'm glad I brought it up, which kind of traditional companies out there right now, like give us give us some examples as far as what interest you've been getting in from who, like not necessarily just from web3, but potentially you know traditional companies that exist out there that might want to or you know might not know about but would be interested in potentially moving to kind of a co-op model and why.

Batty Hattie - Founder
‍King, can I, sorry, can I just interject? I do apologize, literally got one minute. I just had to say hi. So, oh, literally just a bed, so I'll hand you over to Hattie and she can say hi. Hello, I'd like to say, happy hashentines, just stuff to bed, but night, and I hope the hashtag bugs don't bite.

Genfinity – King Solomon – Founder & CEO
‍Good night, Hattie. Thank you so much for hopping on. It's always a pleasure to hear from you. Good night.

Genfinity – King Solomon – Founder & CEO
‍I actually had a question in regarding what Solomon actually just said. I'm just curious like from the standpoint of like existing projects, that would potentially want to get involved in something like this. That there's if there's like some information or anything that you could guide them to get involved in something like structuring their existing project into a co-op. And then also, like if there's if that's the case, if you're if you're accepting those types of applications or not. And then also kind of if they're if you are, would they have to change anything with what they're doing with maybe a token distribution or rewards or anything like that from a NFT project standpoint.

Upside Cooperative – Tyler Morrey - Founder
‍Oh, yes, okay, there's a few questions, so let's see if I remember all of them. Sorry, yeah, you're good. Um, starting from the top, yes, we are accepting applications. We are onboarding cohorts over the next couple of months, and you know we definitely want to help the Hedera ecosystem as well. So any Hedera projects, yeah, please do reach out to us. The easiest way to get on the list is through the website upside.coop, top left corner, there's an interested button, you click that, fill out the form, and we'll get something scheduled to start talking. Otherwise, you know, if you forget or can't find it, always feel free to reach out to me on Twitter. I, you know, DMs are open, we'll have a chat, but yeah, aside from that, it is a lot easier than people think in terms of what a project actually has to do to get started and get onboarded right. Why? Well, that's because you know we have made it as simple as possible. We take on, you know, the complexities ourselves. So, you know, the way it really works, is you don't have to set up your own co-op. Right, like within the paper we talk about how this works in setting up a co-op, integrating it with the structure and everything like that, but the beauty of doing what we're doing is that we are the co-op. You just integrate us as the co-op, right? And then as your community becomes members of our co-op, they get to participate in your ownership and that is again limited just around you and your community, right? So, we get to be as the co-op manage this shared ownership for any project and their communities. So, that being said, it's like two agreements that we sign and we give you the template equity agreement that you fill out, and then we sign that, and we're off to the races, right? So, it is it is actually fairly simple in terms of the legal side, you know, in terms of the tech side, we're just going to do some integrations. We're going to get your contract addresses, make sure that we implement that, and then your users, they will connect any external wallet on upside.coop to prove that they own, you know, NFTs or tokens, whatever that you're using to define your community, and they create their account, and that's it. Now we are off to the races, we can get started. And the way that this ownership is distributed is you know, initially it's just paid based on purchases, but that can be, you know, extended to any level of activity or interaction that is valuable for the project in the community, right? Like retweeting a tweet, as simple as that, or you know, referring their friends to the community, you know, anything that's going to help it grow and be more sustainable and healthy, and by purchases, right? That entry-level what we mean is like you minted an NFT, you bought the product of a company, they, you know, they sold that digital collectible, now you're going to get ownership based off of that purchase, and it, you know, what it kind of looks like is like a like an ownership based loyalty program, um, which is why you know, again, it then becomes extensible and viable for any business, not just an NFT project or you know, utility token, or any web3 business, because it turns out that.