Joey DeBruin
@joey
Does anyone have a handle on the legal side of Royal music NFTs? Is an LDA similar to what Opolous or Republic call an S-NFT? Is Royal registered under U.S. Regulation Crowdfunding? I can't find in their docs.
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JD Ross
@jd
It is not a security so not registered. It’s a fully on chain contract containing rights to streaming income. The contract is linked from each token. Using the royal app or directly on chain each owned can claim royalties as they are released
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Tara Fung
@tara
This is a big topic among private market securities folks. Many experts would argue that Royal is offering unregistered securities as their product checks all the prongs of the Howey Test and they should be utilizing some of the private market exemptions (e.g. reg CG or reg A)
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Tara Fung
@tara
For instance, Royalty Exchange has a similar product and they utilize a securities exemption (which is different from non-registration) to offer royalty streams as an investment product to individuals.
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Tara Fung
@tara
The argument supporting Royals product as not being a security hinges on the “common enterprise” prong within the howey test as I understand it, namely that streams of a song are not centrally controlled and so no common enterprise is responsible for the “expectation of profit.”
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JD Ross
@jd
without going into this, this is wrong from start to finish
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Tara Fung
@tara
Would love for you to go into it! Focused on learning here. As context, I used to work in private securities, have my series 65, and I’ve spoke with outside counsel about this specific example (sharing this to give background, not to say I have all the answers)
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