Dave Rodman on choosing the right offshore home for a crypto company

0:00I'm Ashton Addison from the Crypto Coin Show and today on Blockchain Interviews we have Dave Rodman, founder and managing partner at the Rodman Law Group, one of the leading boutique firms in the digital asset and crypto space. Dave's been navigating nascent and new industries for a long time now and has facilitated over a billion dollars in deals. Excited to dive into the

0:23ever-changing and growing landscape of blockchain, digital assets, AI, and everything else. Dave, welcome to the show and thanks for taking the time.

Yeah, of course. Thanks for having me.

Yeah, the legal landscape of the ever-evolving crypto and blockchain industry has to be a crazy one. You know, it's almost like you're you're working ahead

0:43of the regulation and playing in these sandboxes and figuring out the rules as you go. I'm sure you would know the details. I'd love to hear your insights from a high level on how it's been so far in working with this and maybe how it's evolved from when you started until now.

well, yeah, it certainly isn't boring. It has been intellectually stimulating and

1:09wildly frustrating and rewarding at all the same time. It's obvious obviously there's been like waves and of both like user adoption and regulatory interest and you have like the actual economic crypto winters and then you can from my standpoint you have like the regulatory crypto winters. But [clears throat]

1:36through all of it there have been a lot of really smart and driven founders who have created cool products that

[clears throat]

people use, have utility, and you know, sadly a lot of those things have had to go offshore. But

[cough]

which which which creates friction that a regular tech startup doesn't have, but you know, given the

2:04borderless nature of the industry, that friction has been mostly easily to overcome and these things still get kind of adopted worldwide.

Definitely, and I'd love to dive into that onshore versus offshore and if that's changed in a little bit here. I want to continue sort of at the beginning. You know, there I've I've also spoken to many crypto founders

2:30And layer one protocols at their inception, which is a privilege to know all these smart people. From the legal side of it, when

[laughter]

how how you know, do you have to get involved on day one or when do crypto founders need to have a lawyer?

so the answer to that, and it's not self-interested, is yes, day one lawyer should be involved. It's rare

2:56that we have that happen, but it does happen and people have sort of gotten the message over the years that like, "Hey, we have all these cool ideas. We but we know the sort of landscape is fraught with legal risk. And so you know, more and more from like 2021 on, the we have we have more people who talk to us day one, day 10.

3:22But we still get people who have gone down the road quite a bit and come to us and been like, " man, I wish you guys had had talked to us first or talked to a lawyer first. Your your life would be easier. So, I think the way I kind of describe this is you get a lot of very smart tech people who start something and then either explicitly or implicitly have the

3:51sort of move fast and break stuff mentality And that doesn't really work in an industry in which a lot of the underlying things either are financial instruments, function like financial instruments, or look like financial instruments. And that's an area that you really cannot move fast and break stuff without real risk. And so more so than like any

4:16other industry, I think except maybe

[laughter]

except maybe cannabis inside of Alex and our other practice areas, you really have to have a lawyer on board, a competent Web3 attorney on board from day one or as soon as possible. For the guys at day one, I know it sucks. It is an expense that they don't want, but if you can take the long

4:44view, it does save you money and time over a time horizon of like getting in the market.

Definitely. I feel like it's the hard discipline road is the one that pays off. Sort of like you know, try try to eat healthy to save on medical bills and down the road, you know that if you if you don't do the legal part in the beginning, there's a chance it's going to be really

5:08expensive or you know, completely fail at the end.

Yeah, that's a great analogy. I think I'm going to steal that one. I like that a lot. That had an exercise the lawyers early in the in the process.

Definitely. And you know, just off the top of my head, I can think of so many different aspects that would potentially require legal support. You know, starting the

5:28company, whether it's raising capital, or doing a token sale, or having the software, you know, if it's a financial product, just where you're hosting the software depending on what part of the industry it's in, or if you're doing tokenization of regulated securities. I feel like all of these have legal aspects and you might need to have different kind of legal expertise for

5:47each one. So, where are you specialized in and can you help with all of that?

Yeah. So, I mean, at a high level, this is one of the things that I tell, you know, non-crypto lawyers, you know, people who ask me about the space, you even sometimes just people, potential clients, it's like there I'm not aware of any other area of law where you get on a phone

6:13call, you have an idea of what we're going to be talking about, and you know, you to be good at this and to provide good counsel, you have to be able to just as an example, start a call about securities law, then answer questions about tax, then consider other jurisdictions and whether or not they might be more optimal, and then well, then what about IP?

6:42And like in any other in any other world, that's probably different at the very least, in different phone calls with a schedule, and that's what they're going to talk about. But, because of the way this industry works and because of the way the products work and the underlying works, you can't really give advice if you're not going to be able to talk

7:07about all those things in rapid succession, and talk about them intelligently and accurately. And so, I'm very cognizant of like pulling those things in as early as possible, cuz the last thing I want to do is have a client go a certain amount of time, and then have to come back to them and say, "Well, you know, there's this other thing that we didn't talk about, and it

7:28kind of tweaks or drastically changes everything." And don't get me wrong, nobody's perfect, I'm not perfect, and that does happen. But like, at least being able to cover the main five or six categories that come up just instantaneously off the top of your head and it is super important. And so, that's like the high level. Your specific question about

7:52What whether all those different areas and can we advise on them? Well, the answer is yes, and we talk about all of those things. You know, the ability to practice in every sub vertical within crypto is something that I'm pretty proud of and I think that the only the white whale, the only thing that we have not represented directly has been a centralized exchange.

8:20typically, they have a lot of money. They like the big law names. There's like no and still it's on my list. I think we could do it and do it well for fractions of the cost of what the big Web3 law firms charge. But, you know, everything else we've got clients in every vertical and have been able to do very very good work for them.

8:46

Definitely. I'm curious about that right coming to a boutique firm versus you know, the big name that these companies that have raised billions of dollars are using. I'm sure they're paying more. They're probably going through levels of bureaucracy and 10 assistants just to talk to just to get an email back from from the main lawyer. What is the main

9:07difference and the advantage of working with someone like Robin Law versus that those top big guys besides it costing more?

I mean, truly that is the biggest one. Like the big law is I say it all the time, big law is a lie. There is no world in which you need to pay $3,500 an hour to talk to a partner. It just does not It's not a thing. It

9:30doesn't exist. It's not real. But, but there's no need. But, unfortunately, that's the reality of the And then when you look at what you'd be paying to talk to someone fresh out of law school at one of those firms, you know, I've been doing this kind of law for 10 years. My rate is 850 an hour. You go to Cooley or Fenwick, you know, some guy who just graduated is probably

9:55billing you out at 650 an hour, and they're making mistakes. And so, I think that even though you used to be besides cost, like that is hands down the biggest thing. The second thing is like, I've been doing this since before it was common, and a lot of people in my position have been. It's I remember vividly when big firms wouldn't touch this. And then

10:17starting in like 20 20 2020 to 2022, all of a sudden a lot of these firms are like, "Oh, yeah, we have a web3 practice." And it's like, "Oh, yeah, cool. Like, how long you been doing it?" "Oh, like 6 months." Like, you know, it's it is wild that people think that's what they need to go talk to. And don't get me wrong, there are some of these

10:34big firms that have individuals who've been doing it just as long as I have, but they're very specialized in like, you know, more power to them if you need to talk about that exact thing, but they're only going to talk to you about that exact thing. And then it's like, "Well, okay, now you got to go talk to our tax lawyer. Now you got to go talk to our IP lawyer." And those people are

10:53all probably pretty good, but they're probably not crypto focused, and so you got to then explain everything about what you're doing to them again, and your your your cost just balloons. And the timing takes forever. So, and then on top of all of that, we get, because of those things, we get a lot of big law refugees. I E people who started at big law,

11:21realized they were getting screwed, came to another firm to a smaller firm. And the crazy thing is that with everything I just said about cost, the small to catastrophic errors that we find on a regular basis is bananas. So, when you are dealing with those firms, even if you have a partner or a senior associate who is like just, you know, the bee's knees on a certain thing, that

11:48person is one a cog in a gigantic machine and only has a tiny purview and two is probably delegating stuff down to someone who doesn't know what they're doing and not all of those things get checked. So, the bloat, the cost, you know, that is why I just don't believe in big law. I would never hire a big law attorney personally. I would go and find if I

12:15needed one knock on wood and my firm couldn't do it which there are a lawyer who represents himself has an idiot for a client. So, you know, I would go to a boutique firm over a big firm any day of the week.

Mhm. You mentioned your experience in running through, you know, the different crypto cycles, the bear and the bull and seeing probably an influx of clients in

12:38certain years and then, you know, not as many new clients maybe trying to take advantage of the opportunities of the narratives and things like that. I feel the same inherent experience just being in crypto since 2014 seeing it evolve not from the legal side but just in general. Just that inherent knowing of seeing knowing where we were being there and

13:01now seeing where we are now. I want to tie that into the regulatory side and you mentioned there 2020 to 2022 big firms are getting involved. At the same time, the legislation was starting to shape up in the US as the administration changed. Before those years, the depending on what part of crypto you were in, you sort of doing things and figuring out the legislation behind it

13:29later. Now, there's still a lot to be done in the in the Clarity Act as underway as we speak right now. We can get into that. But as for the legislation that has passed, has that changed parts of business for the crypto clients that you're working with right now?

That's a very big question. Because that covers a lot of years. I will say if we work backwards,

13:56Clarity's not going to pass this year and frankly I don't think Clarity matters as much as people think it does. We can get into that. Genius, I mean, great. It allows for clarity on stable coins, but we already had some opinions at the OCC on that. Also I think it was gutted in the fact that you can't get yield-bearing stable coins in the US.

14:17But great, I'm just going to go offshore and permissionlessly get my yield-bearing my yield-bearing tokens that way. This stable coin token is that way. And so then I think, you know, those haven't affected I and my clients. The modus operandi is still we find a happy jurisdiction, locate operations there and then figure out how to let other people in a

14:43defensive manner. You going back before that, you have the infrastructure bill, which had some nasty in it. Some of which got removed, some some of which did not. That one was disheartening especially given the maturity Well, the market is still young compared to everything else, but at that point I was just like, "Come on, guys. What are we

15:06doing here?" Then you go back before that and we've got stuff from the '80s in the form of the Bank Secrecy Act. We've got stuff from the '30s in the form of the two securities acts. We've got stuff from the, I think I said 30s and then 40s would be the various, investment, companies act and investment advisor act

15:33of 1940. So, like, you know, there's a lot of years of laws that impact things in crypto, and those a lot of those haven't changed. So,

As for the as for the ones that, you know, in the in the 2020s and beyond, from what it sounds like, it really hasn't made a big of an impact. You know, I feel like more should be done from the administration. They've sort of

16:01failed on the aspect of bringing clarity, so to say, to these companies. And they're not focusing on the right things. Do you think that's true?

So, the way that I've been talking about it, and I could be wrong, is that I don't think it matters. I think that, for the most part, the people who want to be in the market are in the market. You know, all the big banks are

16:27participating in some way or another, regardless of whether genius pass, regardless of whether clarity does pass. And for the boots on the ground startup type clients, you know, they've got a path that, yes, is frictiony and yes, costs more than the starting a social media project that has an app that does nothing. But it involves going offshore,

16:51and that's frictiony, but it works. And it keeps keeps people out of they have a lot of defensibility if they do it that way. And the things that are that are supposed to change in clarity aren't actually going to change all that much for that kind of client. And why would they bother doing anything in the US when they can do it with much less touch offshore, much less friction, much

17:17less risk. Like other than to say, "Oh yeah, crypto in the US." Like, fine, that's what you want, great. But like, do you want to be the first test case? Do you want to see how You want to be the first project or the first 100 projects where the SEC says, "Okay, you're no longer a security, you're now regulated by the CFTC." Like, that's never happened in history. There has

17:38never been an example that I'm aware of where a thing is regulated by one agency until a given nebulous point that no one really understands, and then is magically now regulated by another industry. You know what I think is going to happen? I think that they're both going to try to regulate that project at that moment, and there's going to be all

17:59sorts of nasty results. I think that all of this is hubris. It's hubris of a company I'm sorry, a country in late-stage capitalism that is grasping at straws trying to maintain its position as the world financial leader, and the reality of the situation is that some other country is going to approach this correctly at some point, I think in the near future, and that

18:28country is going to jump ahead in the terms of like crypto leading the crypto way. And I have all sorts of theses on where this will be and why this will happen, and I have no idea if they're right, but the CliffNotes is a well-developed country in the global south, probably Africa, is going to take in a position that tokens are not securities, they can distribute

18:54revenue directly to their holders, you know, programmatically, and it's going to unlock, in the same way that the entire subcontinent of Africa jumped from landlines to cell phones, we're going to jump this whole nonsense. Companies are going to realize that this is possible, and they're going to locate there, and you know, is that the beginning of the end of the United

19:16States fiscal dominance in all markets? Maybe, but it certainly will be for crypto. I think that it's just the fact that just in general, borders matter less, but for crypto in particular borders matter very little, and there are ways around all of the grasping of any regulator. Doesn't mean you can't get in

19:43trouble. Doesn't mean you can't get caught. You doesn't mean you can be made an example of, but like this is a I think it I just call it hubris, honestly.

Mhm. Yeah, very interesting times. I'd love to hear more about the you know, the what we have to come to is the offshore strategies, and we're serving a global market anyway, but setting up properly so that you don't

20:07have to go through these flaming hoops or get, you know, emails and letters from SEC and these other board governors for being at least being in the US. You might still get them anyway. But, how do you determine what are the right jurisdictions to incorporate for crypto companies?

we have a stable of roughly three that we use for just about everything, and

20:32it's just been something that has developed over time. Like you want to issue a token, the answer is BVI, and always has been BVI. It's the jurisdiction in which we've worked the longest. We added Cayman to that mix in 2020 with the advent of the foundation company, where you could do true organization, where I have a an entity that has no owners. And so that plus BVI

21:00to issue tokens was like the model. And then we were doing operations in BVI for a while. They changed their laws. And so instantly moved to Panama because Panama is currently you can take something that's regulated in any other jurisdiction, including Panama, and you can put it in crypto. And

21:28basically, because crypto is legal but not regulated, you can do that in Panama. And at least whatever you're doing is viable and legal in the jurisdiction in which you're located. And then you kind of figure out the various risk profiles of opening up your product to other countries and that's a project-by-project basis, but anything cool,

21:56anything I call it objectionable, but that's just objectionable from the US and Western Europe sort of view. So, anything fun goes to Panama. Anything token issuance-related goes to BVI. The general recommendation is Cayman as a topco for organization purposes. And then, you know, you can sub Panama out with US if your project is super

22:24vanilla. The example I always give is you know, if you're going to have a social media company that has the need for a token, issue your token in BVI, have Cayman an entity orphanizes it, run your social media company in the US. It just plugs into your your token ecosystem, and that on its own works well. And if you get an acquisition offer from Facebook,

22:53you unplug the token component and you sell them your very clean US company. So, those are the two mechanisms. Like, there are other jurisdictions that have been proposed over the years that I believe fail for various number of reasons. But currently that is the model and has been the model since 2020

Okay. That's good to know and I

23:20I was trying to guess in my head what were the what were the top three and I did have I knew BVI and Cayman. Cayman a lot of Canadian friends and companies are in Cayman but I didn't know the token part is best in BVI. So that's solid to know and Panama that was the one that everyone's always heard of Panama but what are the reasons that you

23:40actually need to go there? That's where you come in handy.

[laughter]

Yeah, we've got we've got a good sister firm down there that will will write us legal opinions on all of our clients' projects. Like, yep this is doable and it's cost-effective and it's it's yeah, it really just works. Now will it always work? I doubt it. Like,

24:06BVI used to be Panama. We used to do the operations in BVI, too, but they changed their rules and exempted token issuances but if you had anything exchange-ish, you know, a DeFi project or something like that, they wanted a huge amount of infrastructure on the ground and that was cost-prohibitive. There is there is one other jurisdiction I always throw out there and it's if you

24:27have a lot of money and you want to go a more regulated route, you're really going to do KYC. It's a big sort of threshold. You can go to Bermuda which is very interesting because they have a process in which a startup can legitimately get a financial license and you have to have like $10,000 in reserves and it's like a it's like $1,000 a year for a license for 2 years

24:50and you know, you work with a very expensive law firm there. It's not something that we do but we do make recommendations and then you sit in a room with the regulator and you come up with the rules that's going to govern your company for the first two years. And so, the bare minimum there is a KYC process for your users. Which, you know, frankly, most of

25:11our clients have heard this heard me say this. They're like, "Nope." We had one or two who who took us up on that and there's a real path there. And then, Bermuda's one of the actually like undercover financial centers of the world. And so, the idea is get a track record there, show that you're compliant, and then eventually when the laws are ready, jump to the US.

25:35But, so that's from my experience, very rare, but it is a cool option for certain projects.

That is very cool and I do have some I work I'm friends with some PR teams and some companies that are in Bermuda. I know they have an annual conference. I've been invited, but I haven't been there yet. It is a bit of a trek. But, I would I would like to check out

25:56the scene there as well. So, that's very cool. You know, I want to touch briefly on AI and AI agents and that incorporation into crypto and blockchain, if that's changed anything with the crypto companies that are coming to you. I'm guessing some of them are like, "Hey, now we're incorporating agentic finance or AI." is there anything else to worry

26:18about when you start incorporating AI agents in terms of the legality?

so, yes. I think it's just an extension of like the equivalent smart contract risk. You have software risk. And so, I think that you know, there's no special rules for AI. I think that you are at risk of legal actions if your product breaks or

26:48does something ridiculous. And with a proper disclosure and like this is beta and the terms of service saying, you know, LLMs are non-determ- I can always forget if it's non-deterministic or deterministic, but like they're they're fuzzy. And as long as you like disclose all that, then you can largely protect yourself. But otherwise it's like traditional

27:10like, "Hey, did your did your word processing proj- product contain a Trojan horse that torched a bunch of computers?" Like there's liability there. In the same same sense it's probably a little bit higher because of the agentic component to it, but there's no like special AI laws for agents. It's all going to follow at least currently it's all going

27:33to follow the existing liability rules of who built it, how it's deployable, who who agreed to what. I do also say that there are some overlaps with like the sort of crypto ethos of code is law, which like I know I tell people no, law's law, but what I mean by that is like when agents start to interact with each other, you your best your best defense

28:00your best like defense of having a good outcome is good code and like, you know, making sure that they are doing what you want them to do because it could actually be kind of hard to enforce recovery, but at the end of the day if you needed to, the process would be okay, like, "Well, is it the person who is using it? Is it their fault? Is it

28:21the person who built it? Is it their fault?" Like there are people that you can go after. And then the fact the ability to go after them largely will will rely on just the standard tort like reasonable person standard and what you agreed to or what your counterparty human at the end of whatever top chain of agents it is agreed to as far as like terms of service.

28:48

[clears throat]

you know, that's it's cool and it and I am a huge proponent of all things agentic in the space and just by in general like I spend an ungodly amount of time building tools for the firm using AI. But at the end of the day the legal principles behind it are are pretty sound and established.

Yeah, it's it's developing quickly and

29:17right now I a very small amount of percentage of people are actually using, you know, AI agents. They're mainly just using LLMs and copy-pasting and doing stuff. But the automation I feel like it's going to kick up in the next couple of years. In that they can

Oh, it's going to be faster than that, man. Like I think I think personally, and I'm not

29:37a coder, but I'm about a month away from having at least one AI employee based on all the work that I've been doing. So, yeah, if I can do that, you know,

[laughter]

people way smarter than me with much better tech backgrounds are just like inches from it.

Definitely. In terms of the next couple years and evolving the decentralized finance protocols

30:03into, you know, the future of finance into more traditional finance, what part of blockchain do you think is going to have the greatest legal and regulatory complexity as it grows? You know, is it DeFi or real-world asset tokenization in the regulated world?

So, I think that tokeniz- real-world asset tokenization is actually going to be pretty vanilla at the end of the day.

30:27You know, I think that a lot of the existing laws will actually fit pretty nicely around this stuff. And you'll end up with like permissioned blockchains where, you know, white-listed people can use them or could permission permission app chains. I don't exactly what form it'll take, but you know, the example that I always give is like the DTCC sucks and it

30:54operates on code from the '80s and when it starts to replace settlement of stocks with blockchain, I mean everybody's life is going to get better, but like no one's going to know why. Very few people are going to know why. And so I think that all of the things that you think about like a tokenized in that sense will be pretty easy to deal with.

31:17D- DeFi is certainly up there. There's this thing that no one really talks about and I don't know why, but it's called CARF and it's this worldwide compliance thing that like most major company countries have signed. And it basically says that DeFi protocols have to report on users'

31:43gains and losses to their tax agencies and I'm like, "How the is anybody going to expect this to take effect or be possibly enforceable?" But it's going to have a massive impact on at least a couple of projects who get caught up in it. And it won't be everybody cuz there's more projects than there are enforcement agencies, but this is a worldwide thing.

32:06Panama has signed it, Cayman I believe has signed it, the US has signed it. I don't know what that means for projects who like physically cannot comply with it. And then so the noose is attempting to be tightened. So the sort of permissionless and not pseudo-anonymous components of

32:35crypto are under fire and no one really knows that. I have been talking about this for as long as I have known about it. The guy who told me about it has been like screaming from the rooftops and the lack of interest from people is kind of wild to me because it's it I mean America's component takes play takes effects in January. And then I think some of the other

32:59jurisdictions is like 2028. So like they're like a ticking time bomb here and who knows what actually comes of that. So yeah, I think I think DeFi out of all of the things is clearly the one that's going to be the most difficult to is going to be the most under fire and the most difficult to protect. But then at the day like people are going to figure out a way to

33:22to use this stuff and to build this stuff.

Definitely. And maybe the advancements in encryption we're starting to see privacy integrations into Ethereum. Vitalik's talking about it. I'm seeing you know FHE fully homomorphic encryption levels beyond ZK-Snarks and zero-knowledge proofs. So maybe that technology will help

33:52well it might be an opposing force to

Yeah, I would like to see that happen, truly.

We'll see how that how that goes. But it's definitely good to have a legal counsel that is on top of this, you know, especially if there's impending rules that are coming in and you know, you've been working on a project for 10 years and all of a sudden

34:12The legalities change or the jurisdictions have to change. So that's always nice. I you know, there's so much we didn't cover and I was going to ask more about those three jurisdictions, but maybe we can do that next time. But for the companies or for founders and friends and the viewers who want to learn more about incorporating or just getting legal

34:34counsel, what's the best way to learn more about this and to reach out to you?

the best way to reach out to us is our website.

[clears throat]

It's got, you know, all the normal things, submitting information, and it has our phone number. We have a Twitter handle Rob at Rob and Law. Like I throw it out there because, you know, crypto Twitter, but like we

34:57never check it. Just to be perfectly honest, it's it's very you know, it's there, but we don't use it that much. We're that on that particular thing, we're pretty old school. Like, you know, just call us, email us. We have clients all over the world. We're not just US-centric. We've got some clients whose only touch to the US is their law firm,

35:19which I'm kind of proud of. As far as like educating themselves on their own, you know, I think that we've got some stuff on our on our blog. It's It is a I think it's a hard for every Bringing it back to like the first question, one of the first questions you asked me of like pulling in the at least five big categories in every conversation,

35:46because of that, it's very hard even with like a given post that's on my law website. You know, it's it's hard to self-educate because there's only so much you can self-educate on. And like, you know, just to throw it out there, like tossing stuff into AI, while AI is good, you know, it relies on training data, and there is not a lot of accurate

36:12training data on this stuff. And on top of that, everyone should know that whatever they put into AI is not subject to attorney-client privilege. So, if you say, "Hey, Claude, can I do X, Y, and Z in the United States? And Claude says, "No, it's illegal." And then you go and do it, and then you get caught, and then it the prosecutor is like, "Well, you

36:40know, you got AI advice that told you that you couldn't do this." Like that's fully discoverable. You come to me and ask me that question, and I answer that to you, or any lawyer, that shit's private forever, unless you tell someone about it. So, like I hesitate to say go tech AI, cuz like you know, there's real risks there. So, I think I think you know, some

37:05high-level stuff, sure, Claude's great, but if you start to ask it questions like, you know, "Is what I want to do illegal?" And then you do it anyway, you've got some problems.

Yeah. Solid disclaimer, makes complete sense. And yeah, there's no getting around with the amount of complexities of different facets, five, six, seven different legal aspects of building a

37:29a blockchain company that could be the next unicorn. There's no getting around retaining law. So, it short answer. So.

[laughter]

I appreciate all your insights on this, Dave, and it's fascinating, and I would love to have you back on as as the landscape evolves, and I'll I'll leave some links to the site and the Twitter in there if people are going

37:51to check it out. And yeah, let's follow up in the near future.

Love that.

Thank you for having me.