Blockchain financing and other key related developments

Usman: Hi everyone. Welcome to the Blockchain Financing webinar that is being hosted by Gowling WLG. Just by way of a little bit of background, Gowlings has been hosting a whole series of webinars relating to the impact that the COVID-19 pandemic has had on financing activities, as well as M&A transactions, as well. What you're going to see on the few slides in front of you are all of our past webinars on this topic as well as upcoming webinars. If you've missed any of the past webinars you can access these on our webpage. We have on demand versions which are available for you to take a look at. Before we get into the meat of this panel, let me just start off with a few housekeeping points, if I may. The first is to best view this presentation, and all of the speakers, you should go ahead and click the speaker view which is in the upper hand right corner of your screen. That should do the trick. Then second, if you have questions throughout this session, please the Q&A button that's at the bottom of your screen. We're certainly going to try to our best to answer some of those questions towards the end of this session and you should, of course, also feel free to reach out to any of us towards the end of this or after we're done this panel, as well. This presentation is also being recorded and, just like our other webinars, it will be posted on our website in a few days. Finally, for those of you who are lawyers this program does count for 1 hour of Continuing Professional Development credit, in applicable jurisdictions and details of those credits were set out in the invitation that you received for this webinar. Given that this presentation is being put on lawyers we would be remiss if we did not start with a legal disclaimer. So here it is. Today's session will be a very high level overview, for general information purposes only, and should not of course be taken as legal advice. Information that our speakers are going to be providing to you has been summarized and paraphrased for presentation purposes and the examples that we're going to be providing here today are really just for illustration purposes only. Ultimately, the responsibility to comply with applicable laws including securities laws, remains with the given company and each public company's situation is going to be different. For specific advice relating to the topics that we're going to discuss today please consult with your legal counsel. I suppose one other thing to note is that the information in this presentation today really reflects the securities laws, and other relevant standards that are in effect, as of the date of this presentation.

With that, here are our speakers today. They're all in a Brady Bunch fashion in front of you in the Zoom box. These are all key members of our Blockchain and Smart Contract team. So we have Gord Chmilar. He's a partner in our Calgary office. We also have Tom Hunter. He's a partner in our Waterloo office. We have Warren Cass. He's a senior associate in the Toronto office, and then we also have Shaela Rae, who's a senior associate in our Ottawa office. My name is Usman Sheikh. I'm the National Head of the Blockchain and Smart Contract at the firm. Just by way of a little bit of background, our firm has a quite extensive practice in the Blockchain space, with over 50 to 70 members across our international offices. Whether it's Canada, the UK or Singapore that are practicing in this area and we represent anyone from top companies, banks, stock exchanges that are pivoting into the Blockchain area, to Blockchain pioneers, to some of the largest crypto assets and many, many others including startups. We actually have a book coming out on the topic of the Law of Blockchain Technology so please look out for that as well.

Okay, so moving to the agenda. We were planning to start off with some introductions. So check on that. We've finished that point. We'll then move into, in terms of the other topics to cover today, we wanted to discuss some of the trends that we're seeing in the Blockchain space due to the pandemic, including in relation to financings. Then we're going to discuss some government relief programs that would be available for Blockchain businesses. We'll also cover some unique challenges that we've seen that are again quite unique to Blockchain businesses as well, and then we'll finish it off with a discussion about some of the litigation and other key developments that we've been seeing in this area, and finish things off with a Q&A as well, time permitting.

Okay, so the topic of this broader series is really Financing in Uncertain Times, and where I thought I would start off is with first the following the question. How has the pandemic, or COVID-19, really affected Blockchain companies, in particular, if at all? Maybe, Tom, if we can start off with you.

Tom: Thanks, Usman. Appreciate that. I think that the result of COVID has emphasized what already was happening in the Blockchain market. That is that Blockchain companies have had to get real. As they say, the shine is off the apple and in order to obtain financing and scale and be successful, the open source technology that Blockchain's protocol is running on, it has to support decentralized applications, commonly referred to as DAPS, that address in market pain point and that can achieve, ultimately a sustainable revenue model. So a Blockchain that facilitates the addressing, and perhaps even the solution of a real problem in the market, and that results in the DAPS providing that solution driving significant revenue over time is what's going to attract financing. The technology and protocol that is the basis of the Blockchain, it's a very crowded market now, as we know. Every other day there's a new Blockchain company with a new protocol. The question is why is it better than the competitors? What advantages does it provide that others do not? Or what problems does it solve in terms of Blockchain technology that others have not figured out? Whether that be the use of energy, the robust nature, the cost of transactions, etcetera. Often a new Blockchain company has technology expressed in a white paper, and one of our patent colleagues would question in your white paper, is that patent worthy technology or is it just an obvious technology that's a new spin on something that's already out there. So those that present innovative technology in their protocol will have a better chance of financing. Four other areas where Blockchain companies have had to pay more attention, certainly in their go to market plan, they need to indicate or at least verify that the use of the Blockchain by DAPS has been piloted and piloted and piloted successfully. The more legitimate the pilot, and the larger the uptake and use within the pilot, the better. But if you haven't piloted a DAPS you're going to have a very difficult time convincing someone that your protocol is worthy of investment. One thing that we see consistently in the Blockchain space is a team that doesn't have the experience and the expertise in multi-jurisdictional businesses. Which Blockchain definitely is. We have companies that are headquartered in different countries that are operating their business in different jurisdictions because of the regulatory environment. The question is does the leadership team behind a Blockchain company have that expertise and experience? If they do, is the company raising sufficient funds to continue to incentivize and hold on to the team, and in fact, to attract more team members over time so that they can execute on their, what is inevitably a global go to market plan. Cash flow and revenue model, always important. In the Blockchain space really understanding the regulatory environment and how will you raise money if your token is deemed to be, or characterized as security, and not a utility token. We see with the regulators that's becoming first and foremost a major consideration when the Blockchain is raising many, because of course, if it is a security they must comply with security laws in the jurisdictions in which their investors reside. In terms of revenue model, it's not just a revenue model for the DAPS but it's a revenue model for the Blockchain, and does the Blockchain's revenue model, is it defensible and does it make sense to the investor community? Finally, in terms of getting real, monetization. Is the token of your Blockchain, can it be easily traded? Can it be converted to Fiat currency? This really addresses the question of liquidity which one of my colleagues will address later in the presentation. All of that is to say, can you build a real business out of a Blockchain company that you are launching?

Usman: Okay. Maybe, Warren, over to you.

Warren: Yeah. Thanks, Usman and thanks Tom. When COVID-19 really started to bite, Blockchain companies were already coming through some pretty tough times. Crypto winter, which was the rapid and sustained decrease in the value of many tokens, and therefore interest in Blockchain products was still in 2019 very much in full effect. That continued for the first couple of quarters. In 2019 as a result, even though there was a sort of pick up in interest in price of various digital assets, overall equity fund raising deals in the Blockchain sector had decreased by 18%25 as compared to the previous year. The value of fund raising deals had decreased by 40%25 to $2.4 billion US. These are numbers from PWC's report on the sector. When COVID-19 hit the financing environment was already pretty tight. Financing was more easily being directed and raised by later stage companies. Certainly incumbents in the area that were solving some of the problems that Tom had alluded to. The real world problems, and the real world problems of the Blockchain itself, making it more interoperable and serviceable more broadly with the existing economy. When Coronavirus hit it triggered a sell off in March. Unlike the expectations of many people that Bitcoin and Ethereum and other sort of like blue chip reserve type currencies in the cryptocurrency world would do very well when traditional equity markets fell, and when inflationary policies were brought in by governments to deal with these kinds of problems, digital assets actually generally followed equity markets. The global market cap for cryptocurrencies is down significantly and many alternative tokens got hit even harder falling by more than 50%25 from pre-pandemic highs. All of this is to say this made a tough situation tougher for many. Entrepreneurs have had difficulty raising financing and attracting interest especially from retail sources. We've learned that crypto is still viewed by many as a high risk asset, and many investors in that space are not necessarily willing to take these risks, at this particular time. One of the sort of knock on effects of this is that Bitcoin miners have been hit particularly hard. COVID coincided with a halving event in May which is effectively a preprogrammed 50%25 reduction in the amount of Bitcoin that Bitcoin miners received as a result of mining next blocks of Bitcoin. It has become a little bit cheaper to do that, as a result of the sort of technical problems that they solved in order to do that, becoming less difficult, and therefore requiring less energy input. But these two things added together have ended up making a very sort of difficult situation even more difficult. Low Bitcoin prices that persisted really squeezed the margins of many depending on what their input costs and technology costs were looking like. Which has led a number of Bitcoin miners to either hold digital assets until their cash ran down, and raising the specter that they would have to start selling out assets just in order to maintain liquidity, therefore further depressing Bitcoin prices. So the recovery of Bitcoin prices has lifted the pressure on that a little bit. But that sector aside, all of these difficulties for entrepreneurs, and certain parts of the Bitcoin economy, have created great opportunities for well funded investors in the space to come in and drive hard bargains, negotiate deals on technologies that they think will be worthwhile investments. So we have seen a number of opportunistic behaviour seeking to take advantage of this opportunity. Now I'm going to turn this over to my colleague, Gord, who will discuss the specific experience and impacts on Canadian listed companies.

Usman: I think, Shaela, did you have something to add to that?

Shaela: Yeah, I was just thinking maybe just to show the other side of the coin a little bit, looking forward and looking down the road. Some think COVID-19 crisis can actually be seen as the perfect opportunity for policy influencers to re-think their stance on crypto assets and the actual usability of Blockchain as a technology. We've seen that cash is unusable, for sanitary reasons, and digital transactions seem to be the only way to get anything done. Central banks and large financial institutions world wide, they're beginning to move into the world of decentralized finance, and they're experimenting with coins and tokens. Governments are aggressively seeking ways to rapidly deploy financial support to those who need it. Perhaps it's fair to say that this pandemic will hasten our transition to more efficient and transparent Blockchain powered financial infrastructure. So there was an interesting study, an empirical study, that came out of Oxford in March and it found that at least in the earlier months of the virus there was a strong positive correlation between reported cases of COVID-19 and the inflow of money into the cryptocurrency market. That is to say, for at least a little bit, all over the world people were investing more in crypto assets despite the pandemic or because of it. However, as my colleague mentioned, while the epidemic did increase interest in digital currency and perhaps initially resulted in additional acquisitions or capital inflows, the equities markets ultimately plunged. Investors fled higher risk assets for cash or safe havens and digital currencies seemed to have been swept up with this. But, I'm optimistic and a lot of people think that this may soon change. Many are predicting that the presence of digital assets will increase in the post-COVID world. At the same time, according to statements made at the 7th Global Investment and M&A Summit recently held in Shanghai, Blockchain technologies are predicted to be at the forefront as globalization transitions from the physical to the digital world. In their latest report, Fortune Business incites revealed that overall Blockchain technology, as a market, is expected to grow from a little over 1,600 million US to over 21,000 million by 2025. Some of the major players operating in this technology market right now include IBM, Deloitte Touche Tohmatsu, Hewlett Packard, Oracle, Microsoft and Amazon web services, just to name a few. But now in the more immediate present the ripple effect of the lockdown has obviously been very hard on many economies across the world. But certain economies were absolutely hit the hardest. An interesting consequence of this has been in an increased demand for Bitcoin, and other cryptocurrencies, in countries whose economies are really struggling right now. Examples would include Argentina, Morocco, Venezuela and Chile. Ironically, while so many businesses are struggling and so many people are out of work, some exchanges in cryptocurrency businesses have actually had to hire new people and expand operations. So there are some silver linings.

Usman: Yeah. It's a quite interesting point that is coming across from everyone. So there's definitely, and as counsel we're sort of in quite a unique position because we get to see what all these various parties are doing. Exactly what Tom has been saying is that we've seen a lot of parties have to really get real, to use Tom's word, because the effect of the pandemic and then we see another of our other clients and other parties in this space, to Shaela's point, really seizing on the moment. Even more financing going into this area so it's quite a remarkable effect that the pandemic has had. So, Warren was chatting about or mentioning financings, and so let me perhaps move to Gord. What did financings in this space look like before and what does it look like now? Maybe I could turn it to you.

Gord: Thanks, Usman. I think to begin with it's useful to get some context of the financings taking place in the broader tech sector in Canada, which includes Blockchain and crypto mining companies. So if we look at the TSX and the TSXV statistics that are available we see that year to day until the end of April 2020, tech companies on those exchanges have raised $358 million dollars on 38 financings. The average financing size on the TSX is 67.2 million and the average size on the TSXV is 2.63 million. When we compare that against the same period in 2019 we see nearly identical numbers with $359 million being raised on 35 financings. So through the end of April there's been no material reduction in the ability of tech companies to raise funding. We do not yet have data from the TSX for May so we don't have a full picture as the effect, if any, of COVID-19 on the ability of these companies to raise financing. Next, if you look at the performance of many of the well known Blockchain and crypto mining companies listed in Canada, in 2019 in year to date you see that 2019 was a difficult year when it comes to the performance of their stock. Many of these companies were down for 2019 but in an encouraging sign there are a number, as shown on this table, that are significantly up for the year. Even if you take into account the downturn in March that Warren mentioned. Often these stocks track the price of Bitcoin, and so when you saw a spike in the price of Bitcoin in mid-February of this year you saw, in general, a corresponding spike in the prices of many of these companies. Similarly, as these stock prices have begun to rise after the dramatic mid-March drop of the price of the Bitcoin, and the subsequent rise back to the current level, which is hovering around $10,000.00 US right now. So at the bottom of this table there are a few of the more Blockchain specific ETFs, and you see that they are also up year to date, and in fact were up significantly in 2019. So now that we have some context let's look at the financings by Blockchain companies listed in Canada, whether that be TSX, TSXV or CSE listed companies. When I'm speaking here of Blockchain companies, I mean companies that are working on Blockchain related platforms or applications, or are involved crypto mining or cryptocurrencies, but I'm not speaking about some of these listed investment companies that are solely raising funds to invest in Blockchain companies or technologies. So you can see on this chart, year to date, the cumulative financings completed by such Blockchain. The blue line is for the year to date for 2020 and the red line is a similar period of time for 2019. You can see that financings in 2020 lagged behind 2019 for the first 3 months of the year, and then we saw an increase in April of this year before the line starts to flatten out, until now. So thus to date we have seen approximately $6.7 million in total being raised in 2020 by these companies which is down about 18%25 from the same period in 2019. I note that nearly all these financings we looked at in 2019 and 2020 were non-brokered financing. So there appears to be a reluctance by brokers in Canada to take part in financings by many of these junior Blockchain companies for the time being. Now if cryptocurrencies, especially Bitcoin, continue to rise in the face of current markets and COVID-19, you could potentially see stocks for these Blockchain companies also rise. The interest in their products rise and potential for brokers to be enticed back into the market for Blockchain crypto related financings. So next we looked at going public transactions on the Canadian markets. Whether that be by IPO, RTO or change of business transactions. So far in 2020 we've seen no significant going public transactions. In 2019 we did see 7 such going public transactions during the first 6 months of the year. You were still seeing at the time resource companies, or similar, converting their business to Blockchain companies. This year, in fact, we're seeing some of the current Blockchain companies transition away from Blockchain, for example, Interbit. One of our clients has announced a change of business transaction to turn itself into a gold mining company. We've seen other announcements where Blockchain companies are proposing a shift to cannabis. So I don't want to give off, or hopefully I'm not giving an impression of all doom and gloom here, because there's some positive news out there. For example, after 3 years of regulatory negotiation the Bitcoin fund was launched in April of this year and began trading on the TSX. It's billed as the first public bitcoin listed on a major stock exchange. $21 million dollars was raised on the IPO and in May it completed another $64 million dollar prospectus financing. When you're looking at the broader market for Blockchain enterprise funding and crypto companies it may still be too early to conclude how COVID-19 has affected the financing opportunities for such enterprises. But when you look at annual venture capital back deals and financing, enterprise Blockchain funding increased by 62%25 in 2019, as compared to 2018 with $474 million dollars US being raised. Funding to cryptocurrency enterprises and projects was down in 2019 as compared to 2018. But there is still $2.356 billion dollars US raised for such enterprises and projects in 2019. Some of the bigger global Blockchain funding deals occurred at the end of 2019, for example, $200 million dollars US was raised by Ripple in December 2019, and $103 million dollars US was raised by Figure Technologies in November of 2019. You continue to see major players, such as IBM and Microsoft, investing in significant amounts of enterprise Blockchain solutions and applications. So there continues to be a strong belief in the technology and its ability to solve problems and create efficiencies. We have not identified any evidence of wavering of this enthusiasm for the technology going forward, including in the midst of the COVID-19 pandemic, so we continue to stay optimistic about the sector and enthusiastic about assisting our clients as they attempt to access private and public market financing.

Usman: Okay. Thanks for that, Gord, because I know that you're offensively humble, I'll mention as well that Gord was behind one of the very first Blockchain companies to be listed in the world so he was a bit of a trailblazer on that. So these are quite extraordinary times and many parties that have been hardest hit have been Blockchain startups. Maybe let me turn it to you, Shaela. What government assistances or programs are available to Blockchain projects for financial or other assistance?

Shaela: Thanks, Usman. Some might say that businesses in the Blockchain space are no different from any other business and that they vary in size and scope. But this may not be the case in the Blockchain sector where we find a lot of companies are either accrued revenue or at the startup stage. So larger businesses can take advantage of the many programs available such as the wage subsidy program offered by the Federal government, and if this is the case, our firm has a fantastic resource available for all Federal and Provincial relief programs that you can find in the COVID-19 hub on our website. I would encourage you to consult that. But for most businesses in the space, the reality is that they're probably new and emerging, and therefore don't qualify for most of the programs because they don't meet revenue thresholds or other criteria for programs like the wage subsidy. The resources available to them may not be as widely known. To address this vacuum of information we've also prepared a resource designed specifically for startups, particularly in the tech sector, and you can also find this on our website for full details. In a quick nutshell, for an overview, I would recommend going to the Federal governments new aggregator tool. It was put out there designed to help match Canadian individuals and businesses with programs that they qualify for. So it's a great starting point if you're looking to find some relief for your startup. The National Research Council also introduced their IRAP program which helps small and medium size businesses in the tech sector have access to financing. But I believe this particular program has currently closed their call for applications so have to see if that one re-opens. There's also Futurepreneur Canada that offers financing for entrepreneurial new startups.

Usman: How do you pronounce that word?

Shaela: Futurepreneur. And then Business Development Canada has also introduced their capital bridge financing program wherein they will match qualifying current financing rounds, dollar for dollar, which is a great resource. Export Development Canada is offering to guarantee certain credit facilities offers to businesses by financial institutions. So this will have the result of making credit more readily available these businesses who might not otherwise have access to them. Then there's the Canada Emergency Business Account. Small companies that did not have commercial bank accounts with a major bank have probably remained ineligible for this program but, however, a recent statement from the Federal government indicates that they're working to amend this, make it more available. So stay tuned in that regard. There are also a variety of other regional and Provincial relief programs available and they are supporting upstarts and gala companies in a variety of a different regions and municipal areas and Provinces. So I would encourage anybody who's looking for help to consult our resource in that COVID-19 hub because we have a big list of hyperlinks and a great guide to give you an idea of where to start.

Usman: Okay. Thanks very much, Shaela. We talked about Blockchain financings, before and after the pandemic. Gord, thanks for that and also how the environment has become somewhat more challenging for Blockchain businesses. What are, based on our experience, some of the more unique challenges that Blockchain companies encounter in obtaining financing? Maybe I can start off with you, Tom.

Tom: Thanks, Usman. The challenges that the Blockchain companies are facing are similar to other tech companies but they are more serious because of the multi-jurisdictional nature of Blockchain companies. They're just more complex. First of all, in terms of legal jurisdiction, because across the globe every country has a different legislative and regulatory environment for cryptocurrency. Blockchain companies can't rely on one set of rules to govern their business. So they may have mined and management in one country, they're raising money in an other country. They may be raising money, and usually are raising money in multiple jurisdictions, so depending on the residency of the investor the rules of that particular country will apply. So this is complex. It's more costly to comply with legal rules and regulations because you have to deal with more than one jurisdiction. This looks scary to investors. A company that isn't started in Canada or the United States or the UK or in Europe or in China, and is growing their business solely in that jurisdiction, it's playing in multiple jurisdictions. So will they be legally compliant and may they ran afoul of the rules and regulations in one of those jurisdictions? So that is a cause for pause for an investor in Blockchain. Secondly, it's not simply acquiring common shares in a startup or scaleup company. In the Blockchain space there are foundations, Blockchain foundations that are not for profit, that are raising money. They are sourcing token donations, public grants, contributions (quote/unquote) from individuals and corporations. So there's not for profit foundations that have played a role in developing and launching their open source protocol and platform. Then you have, additionally, for profit Blockchain companies that are not just issuing shares of convertible debt for funding. They are selling the purchase of future tokens. They're selling actual Blockchain tokens. They're conducting ITOs, ICOs. They're using crowdfunding platforms. So there is a greater variety of investment tools being used and a greater variety of instruments being utilized to attract investment. Which also differentiates Blockchain companies from startup and scaleup type companies that are just issuing regular equity, standard equity or convertible debt instruments. That increases the complexity for investors. Finally, on the liquidity side you have to ask the question, if I've purchased a token in a Blockchain company, how am I going to trade that? How am I going to dispose of that? There are exchanges available. Where are they located and what are the rules that govern each particular exchange and is it suitable for my token? I just made a list as we were preparing for the presentation. Off the top of my head I got to a dozen different exchanges in the countries around the world from Hongkong to the Caribbean Islands to Malta to Gibraltar to various jurisdictions where there are exchanges that will operate to either provide a trading mechanism for cryptocurrency or converting to Fiat, which is government backed currency, US dollar, British pounds, whatever it might be, Euro dollars. It's difficult from a due diligence aspect for someone holding a token to decide which of those exchanges are most appropriate and what are the rules governing each exchange. Not as simple as selling shares in a TSX. So, not impossible, for sure but much more complex for investors to understand what they're investing in and when they receive the security or utility or token, how can they deal with it? How can they trade it and monetize it?

Usman: Yeah. Just on the crypto exchange point, and our regulators tend to prefer the word crypto asset trading platform, we just actually found out just moments before this presentation was about to begin, that the Ontario Securities Commission released a quite extensive investigation report on Quadriga. So that is available on their website. So to Tom's point about the quite complex rules and regulations that apply to that, again we haven't had the benefit of taking an in depth look at it. We just found about it literally a few minutes before this presentation but should inform ones analysis on the crypto asset trading platform. So, Warren, why don't I pass it over to you. What are your thoughts on this? What are some unique challenges that Blockchain companies encounter in obtaining financing?

Warren: To put into context the next comments that I'm going to make the challenges, and the importance of these considerations and challenges, will vary depending on the kind of investor that the company's seeking to attract. The concerns that retail investors, or even standard broad scope venture capital companies might have, will possibly differ from those that specialize in this space and have a different level of comfort and acquaintance with the dynamics of this sector. But just to pick up where Tom left off liquidity is a big question. Even if there is an exchange that will trade, if you've invested in a token or a digital asset and there is a platform through which you can trade it, is there a liquid market in that asset? If you buy a large quantity of it are you going to be able to get out of that if you need to? For companies that are making more traditional investments in equity, due to a lot of complex regulatory and legal issues and in order to maintain control over the development of their companies, there's a lot of companies, that are promising in this space, are hesitant to go public. There won't necessarily be a foreseeable route for them to list for the next little while. As a result of that it will be very difficult for them to trade securities. So investments are really a long term kind of thing that will have to be held unless there's a buyer available. Turning to the question of regulatory uncertainty and complexity, because of the international nature of so many Blockchain businesses and networks, there's often a question of what jurisdiction's laws will apply. The evergreen question, are the coins and tokens that are involved in a platform or that are the subject matter of the investment, are they securities? If so, when do they cease to be securities? I know that Usman will be addressing that a little bit later in greater detail. For businesses that facilitate the transference of tokens, are they regulated by securities law governing trading systems and exchanges? How are they complying with anti-money laundering, anti-corruption laws and sanctions? Indeed, which of these laws and which jurisdictions laws are the most relevant ones to comply with? Another key issue that investors will want satisfaction on before making large investments is asset security. Often, the legal enforcement of rights in digital assets can be uncertain, especially considering the number of legal regimes that could apply in the number of jurisdictions that are involved. So if there is a problem that arises, it tokens go missing, if a company or a person holding tokens goes bankrupt, where are those problems deemed to have arise and where are the tokens located? What courts have jurisdiction over the settlement and adjudication of rights in those assets? Outside of those kinds of processes, if you're taking security in an asset against an investment that you're making, and it's a digital asset, how are you going to take security and how does it apply to the personal property securities laws in the jurisdictions that are relevant? Another question is custody. How and where are digital assets going to be stored if the investor is acquiring them or if they're investing in a company that deals with them? As we are all familiar with the Quadriga case, who has access to the private keys that are used to access those digital assets? Fraud security and vulnerability to hacking are also major issues that interfere with investment and that investors need to be comfortable on before making investments. Because Blockchain is fundamentally reliant on cryptography for security, that means that the security of a holding of assets depends on the quality of code, which requires a certain level of technical expertise to assess. The difficulty that many businesses face in obtaining insurance, although there are new innovations and products and services that are coming out to address that, to the extent that insurance is not available investors are really taking an exceptional level of risk exposure as compared to a traditional business that might not have that difficulty. Last of all, audit and verification. Specifically, verification that an asset exists in the company or person that has it, in fact has an entitlement to it. Blockchain poses unique challenges. Confirming the existence of crypto assets requires auditors to have blockchain or cryptography experts to verify and review transactions on the Blockchain and off-chain validated transactions. Confirming ownership rights is also potentially a forensic exercise because access to a public key that would entitle the person to transfer a digital asset doesn't necessarily imply ownership. Confirming the reliability of information from a Blockchain is also necessary in order to evaluate the risk that invalid transactions have been added to the ledger, or that validated transactions have been modified or tampered with. That also requires significant cryptographic expertise. So investors that are looking for a very robust evaluation of all of these risk factors, will either need to have that expertise in-house or available to them, and in many cases it is just developing.

Shaela: Maybe I'll just pick up on Warren's point a bit about security and complexity. It seems like the risk security breaches and fraudulent behaviour remain a significant challenge for Blockchain companies and 2020's been a bit of a rough year so far. We've seen a number of notable crypto enforcement cases and security breaches and earlier this week Cyber Trace, which is a cyber security firm, they published a report outlining that nearly 1.4 billion, with a 'B', dollars in cryptocurrency has already been stolen this year alone. If you pair this with an overall increase in opportunistic activity, in light of the pandemic, which includes ransomware texts, where fraudsters demand crypto assets as payment, we're in trouble. On a substantive level investors need a high level of industry knowledge and technical expertise to be in a position to evaluate the security and legitimacy of any given potential investment in this space. More broadly, the association with possible misconduct and security breaches and insecurity in general, it's created a significant image problem in the Blockchain sector and anyone navigating the crypto space. Usman, as I mentioned, there've been some notable enforcement actions in this Blockchain space. Could you tell us a little bit more about some of the notable litigation developments?

Usman: Yeah, just to be clear we've been seeing tremendous amounts of good actors, and so one shouldn't peg this or tag this entire area with these small examples of problematic behaviour. I should say that we have developed quite an extensive practice in Blockchain litigation and of course, we like many others, have been monitoring, actively, cases in other jurisdictions as well. Typically the United States which often gives us some level of prophetic insight as to where our own regulators in other jurisdictions, including Canada, the United Kingdom, might go. We've been noticing, as I'm sure many of those of you on this Zoom chat have noticed as well, quite a significant amount of Blockchain enforcement activity. Particularly in relation to those who are, or are perceived to be, raising capital or otherwise operating in the capital markets. As you'll see on the screen in front of you, we've seen a number of Blockchain cases involving crypto asset trading platforms. Like the case that was brought by the SEC against Zack Colburn who was one of the founders of EtherDelta, which is a decentralized crypto asset trading platform which, again as I mentioned before many use the word crypto exchange but again regulators don't need to like that word, rightfully so because it's a defined term under our securities legislation. We've also seen, as you see on the screen as well, a number of actions against crypto investment funds like CoinAlpha and Crypto Asset Management Fund as well. So this is an active area where there's much evolving jurisprudence. As you mentioned, just a minute ago, the Quadriga report that just came out is going to help to add and inform our analysis, and to that end I just note that the report does discuss how ... the Quadriga platform did involve trading in securities or derivatives, and so how they set out their analysis will certainly be useful to many other platforms in Canada that are domestically based as well as foreign platforms that potentially have users here in Canada. But by far, much of the activity that we've been seeing on both sides of the borders have been cases dealing with token sales. Oftentimes seen as a method to raise funds for a Blockchain project and one of the key issues tends to be whether these token sales are engaging securities or the costs of a derivative and whether they're engaging in an unregistered distribution of those highly regulated products. So without going through all of the various cases that have dealt with these issues, I thought I'd just highlight a few which are on your screen. I tend to like the Paragon Coin case and also Airfox and Gladius, simply to demonstrate the example of how these matters where token sales were involved, and quite significant at that I would say. I believe they all ranged in about the $10 to $20 million dollar range. That's how much was raised through the token sales. It's interesting to look at those settlements with the SEC for a view as to how they were resolved. To resolve those matters, to settle with the SEC, each of those various companies or issuers, were required to register their security, the token. They were also required to effect a claims process to compensate the purchasers who purchased the token, and for some of them they did have to pay a fine, particularly those who did not self apport. There was a recent case just came out, again maybe just about a week ago on May 28^th, in BitClave where a very similar process was effected, in a sense. They raised about $25 million dollars and that was raised from about 950,000 investors, including US residents, and so to resolve the matter the SEC required that the parties disgorge $25.5 million, which was the amount that was raised, and also pay quite a hefty penalty of $400,000.00 and then among other things, BitClave agreed to transfer all of the minted yet unissued coins that they had in the control of a fund administrator for permanent disabling. There are a host of other things that the parties had to do. The two big blockbuster cases that are currently proceeding before the courts, or at the Commission level, are Kick and Telegram. Telegram raises one of the issues that Tom had mentioned earlier, this concept of a SAFT, or what's commonly referred to as a SAFT, a simple agreement for future tokens, where funds are taken in oftentimes from accredited investors and the SAFT agreement is seen as the security and is often pursuant to an exemption and the tokens will then be issued at a later time. Usually it's when the platform that the party is working on is functional so that that token actually has utility and can work within that platform. Oftentimes the issuers are of the view that that token will then be not viewed as a security. It will be viewed as a commodity or a currency or some other, utility token is oftentimes the word that's used, but it will have some functionality within the platform. So this case, Telegram, has called into the question that SAFT model and so the SEC took a quite different view, viewing the agreement together with the subsequent delivery of the tokens, as all a single transaction. They moved before the courts to get a preliminary injunction to prevent the tokens to be issued and they succeeded. They did get a preliminary injunction. Telegram appealed and on May 13^th, not too long ago, Telegram's CEO announced that they would no longer, as a result of largely these proceedings with the SEC, be developing any longer the Blockchain that they wanted to create for which those tokens would have functionality. On May 25^th they ultimately withdrew their appeal.

Okay, so we'll just very quickly, because we don't have too much time left, just talk about any other key financing developments. So maybe, Gord, 1 minute and, Shaela, perhaps afterwards, 1 minute from you. Just what are some other key developments that people in this space should be aware of?

Gord: I just think it's interesting that you're starting to see a number of sceptics of cryptocurrencies begin to change their mind when it comes to them as a store value, especially Bitcoin. It's the unprecedented printing of money by central banks around the world. Some of them legendary investors such as Paul Tudor Jones. He's not come out and he sort of views Bitcoin as a hedge against inflation. You continue to see some investment banks such as Goldman Sachs disagree and they don't view cryptocurrencies, including Bitcoin, as an asset class but then you have JPMorgan who is traditionally kind of fought a war against crypto and Bitcoin. It added its first crypto exchange customer so we'll see how the viewpoint of crypto by traditional investors continues to develop in the midst of COVID-19 and the massive government intervention that's occurred in the markets.

Usman: Right. And, Shaela, just before we hear from you, if people have questions feel free to use the Q&A chat button while Shaela is speaking. Go ahead, Shaela. Oh, I think you're on mute.

Shaela: Can you hear me now?

Usman: Yes.

Shaela: Perfect. Welcome back. So I just kind of, on the other side of the coin here from what Gord was saying, although we do see some increased interest in some big players locally, and in the Toronto area, we've unfortunately seen a bit of a dwindling of financing options for startups in this sector. One really tragic example is that Toronto incubator, OneEleven, announced in April that it would be permanently shutting down in light of the pandemic. We're seeing this all over the economy in various smaller businesses that don't have a lot of cashflow. They're just unfortunately shutting down. OneEleven is such an example that supported several startups in the tech sector. Unfortunately this means that fewer resources are now available for emerging businesses in the tech space. Companies like this shutting down are just an unfortunate consequence of what we're going through in the pandemic.

Usman: Thanks for that, Shaela. So I think another key development that we wanted to talk about is the fact that there's many parties, and regulators, that are still trying to figure out what is the right balance between things like consumer or investor protection, and at the same time not stifling innovation. Although it's just a proposal we though we would mention that of late, which is just a few months ago on February 6^th, one proposal was brought forward by SEC Commissioner Hester Peirce, who's often warmly and affectionately referred to as 'Crypto Mom' within the Blockchain community. So she gave a quite fascinating speech called 'Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization' where she tried to bring forward a best solution this quite catch-22 situation that many Blockchain parties find themselves in. Which is to introduce, or propose, a safe harbour for these parties. So I wanted to just explain to you what the issue is and I'll just read to you what she said the issue is. She says that, "On the one hand you have would-be networks who can't get their tokens out into people's hand because their tokens are potentially subject to potentially subject to the securities laws." She says, "However, would-be networks cannot then mature into functional or decentralized networks that are not dependent upon a single person or a group to carry out the essential managerial or entrepreneurial efforts unless the tokens are distributed to and freely transferable among potential users, developers, and participants of the network." So then she goes onto say, "The securities laws cannot be ignored, but neither can we as securities regulators ignore the conundrum our laws have created." So with her proposal of a safe harbour she's trying to balance, in her view, investor protection on the one hand and allowing innovation to flourish on the other. So what she said is that, "I would propose that we introduce a safe harbour that would allow a party to distribute tokens in a way and benefit from exemptions under securities legislation, as long as certain conditions are met, and that is, among other things, that the development team must intend that the network on which these tokens will function has to reach network maturity, or be fully decentralized or functional within 3 years, and take reasonable efforts to achieve that end. The team would also have to, in the interim, disclose key information on a freely accessible public website. The tokens must also be offered and sold for the purpose of facilitating access to or participation or the development of that network. It shouldn't be for some other purpose. Also that development team must undertake good faith and reasonable efforts to create liquidity for users. The fifth condition was that one should also file a notice of reliance upon the safe harbour itself." So again, this was just a proposal that was made but it is showing that some regulators, key regulators including one Commissioner of the SEC, are trying to grapple in their mind and admittedly it was a work in progress as she wrote it in her speech, but this is just one solution that's been brought forward to deal with these quite thorny issues.

So, I don't see any questions. I'll maybe give a few seconds to see if there are any. Nevertheless I see that we're up to the hour. So it's 2 o'clock. So, having seen no questions I wanted to thank all of the attendees for being here. I wanted to thank each of you, Tom, Gord, Warren and Shaela for joining and, of course, all of you we welcome and reach out if you have any questions, feel free to reach out to any of us. Thanks a lot. Have a good day.