⚖️What are risks of IP-NFTs and IPTs?

IP-NFTs and their IPTs merge two different fields of risk: traditional IP risk and all of the risks that come with experimentation using blockchain technology.

Risks of Control

A classic risk for traditional IP, both because of inefficient default IP laws as well as jurisdictional conflict of laws, is risk of dispute over control. We strongly recommend that you have a clear understanding of who controls any piece of IP that you want to mint into an IP-NFT.

One way to mitigate this risk is to transfer to the IP-NFT into a single legal entity co-managed by several people, e.g. a Series LLC minted on Wrappr. By using a wrapper corporation that sets forth clear terms and conditions regarding IP control and housing the IP in an IP-NFT, many of the traditional risks of IP control can be avoided.

Another way to mitigate this risk is to mint IPTs from the IP-NFT using our model FAM agreement, distributing control to a group of members in an IP commons, an approach we designed for the future of DeSci and described in the "What are FAM?" section of these docs.

Risks of DAOs

There is risk stemming from regulatory uncertainty as applies to DAOs. For example, are DAOs general partnerships? Is there a way to limit personal liability from the risks involved in participating in a DAO? Is holding an IP-NFT in a DAO impute liability to DAO token holders?

These risks can be mitigated by using liability-limitation devices called DAO wrappers. Entities like Otoco or Wrappr are experimenting with ways to limit liability for crypto wallet holders, such as minting Series LLCs or UNAs to DAO wallets, and funds like a16z provide guidelines on DAO features and entity selection.

Risks of Securities

There is a risk that IP-NFTs or their IPTs, if sold in a certain way, could be considered securities.

An excellent analysis of securities laws as they apply to tokens can be found here, in The Ineleuctable Modality of Securities Law: Why Fungible Crypto Assets are Not Securities, by DLx Law. A major takeaway from it is this: there is a difference between the asset itself, e.g. a fungible crypto token or an orange grove and the offering or sale of that asset. The asset, whether a token or an orange grove, may not be a security, but the offering, whether an initial coin offering (ICO) or an advertisement for shares of future profits from the orange grove, likely is a security.

In the USA and EU, securities offerings are subject to disclosure rules and procedural requirements depending on the size of the offerings and the kinds of people who can participate in them. These rules are not hard to follow, so you should learn about them and follow them when and where needed in order to mitigate risk.

To learn about the rules and guidelines for securities compliance in the USA, EU, or any particular country, consult a local lawyer in that country before selling any tokens there.