Comic Funding Project Paused

That time regulatory uncertainty killed my comic incubator

Jun 10, 2023

Tuesday was a soul-crushing day for me. A comic project incubator project I have been working on for over a year just came to a screeching halt because of what can politely be characterized as “regulatory uncertainty.” Crap really hit the fan this week.

Project Canon Builder

First, a brief introduction to Project Canon Builder. I was only weeks away from testing the first stage of the concept with the next issue of my comic, “Lump Dog.”

The problem I was trying to solve is the following Catch-22. Writers can fund a comic via a crowdfunding platform through their fans. But, to collect funds from their fans via a successful Kickstarter project, creators need to have artwork to sell the project to those fans. Creating artwork takes money to pay artists to create that artwork. But you don’t get money from a crowdfunding campaign until it is successfully funded. It’s a vicious circle, and the typical solution is the magic of credit card debt.

Project Canon Builder offers a way to fund a comic in advance of the creation of any artwork via a creator’s fans. It enables a pay-it-forward system that minimizes risk for everyone involved.

As a non-tech analogy, consider the following:

Imagine you are a fan of a comic project. Instead of backing a tier on a crowdfunding campaign, you would support them by purchasing a pack of trading cards.

In that pack, you would get the equivalent of a golden ticket and several trading cards made from script pages of the comic under development. The golden ticket is a gift certificate to the creator’s merch store that is equal to the price of the pack of cards. It can be cashed in at any time in the store, and you’d still get to keep the other cards in the pack.

But collectors would be incentivized to hold that gift certificate until the comic is totally complete.

When enough packs had been sold to pay an artist for character designs, those would be commissioned, and a new pack of trading cards would be issued that included cards with some of those designs. Any collector still holding their golden ticket would receive a free pack of character designs delivered to them directly and free of charge.

If you collected a complete set of script cards and character cards (completing your set through trading), you would also earn a printed script edition comic. Again, delivery of this pack is included and automatically delivered.

Now, imagine simply holding that original golden ticket entitled you to another pack in three months delivered to your door for free. This time the pack would contain a random collection of “pencils” cards. Hold the golden ticket longer, and you’d get an “inks” pack.

If you trade cards with other collectors and gather the complete pencils and inks sets, you would qualify to receive a free black and white “colouring book” variant of the comic.

Finally, if you are still holding the golden ticket, the last pack you receive will contain completed pages. Collect them all, and you get a completed standard edition comic.

The last step would involve a final decision. You could still cash in that golden ticket for merch, but this would be the last opportunity. If you cash it in at the store, you would still keep all the perks received to date. Alternatively, you could keep the perks and trade that golden ticket for a CGC-graded variant cover comic, exclusive to golden ticket holders, by a well-known featured artist at a significant discount.

Clearly, this complicated scheme wouldn’t work with packs of physical collectible cards. Shipping alone would derail the project. But believe it or not, this is actually pretty straightforward to implement using a “phygital” strategy where the packs are packs of NFTs. And just as importantly, there is an entire potential audience that has already experienced this sort of “staking” reward.

I’ve run the numbers, and I am confident it would work. Or at least it could have until this week.

What Went Wrong

On Monday, June 5^th, the U.S. Securities and Exchange Commission (SEC) unleashed two significant lawsuits, one against Coinbase and another against Binance, accusing these marketplaces of trading unregistered securities. Particularly problematic for the digital collectibles space is the Coinbase suit. It lists, among other cryptocurrencies, Polygon, Solana, Flow and Filecoin as unregistered securities. These are all important infrastructure coins in the energy-efficient, carbon-neutral NFT space.

How does this affect Project Canon Builder? There is a non-zero possibility my scheme would get me in the same hot water. I would have said it was unlikely, given that I am not even a US citizen, but a prior lawsuit against Vancouver-based Dapper Labs, known for NBA Top Shots, has given me pause.

How could a simple trading card scheme that involved perks be problematic? What hit the fan in the latest cases was a specific interpretation of those “if you hold it, you get something new” benefits common with NFTs. It appears that the SEC has decided that “staking rewards,” as these perks are called, should be treated much like dividends. And clearly, if you are issuing dividends, the underlying asset is a security that needs to be registered with the SEC. You’ve issued what amounts to stock certificates.

In fairness to the SEC, I believe they are trying to apply existing law fairly. The problem is that no one is stopping to ask if the laws are fair in the first place. I could literally launch Project Canon Builder with sweat equity and under $100. It would bring in an entirely new audience to comics. But now, one interpretation of the law says I would need to register the initial packs as securities. Paying thousands of dollars in lawyer’s fees to do this in a compliant manner more than defeats the purpose.

There is no guarantee the SEC will win these cases, but without regulatory clarity, it is just too risky to move forward. So, until these cases are clarified in the courts or the US adopts clearer crypto regulations like those recently implemented in Europe, my comic book adventures will continue to be at the mercy of the limit on my credit card. I’m too old for jail.

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