#DappCon22: Day 1 - Decentralization And How To Speed It Up In Light Of Regulations,

Transcript

those those gongs mean we are here for the final uh talk which is actually a panel uh for the afternoon and I think this is going to be a really fun one so I'm going to invite Marina marquezich from the European crypto initiative up to introduce our panelists uh the title is decentralization and how to speed it up in light of regulations so thank you Marina take it away thank you [Applause] today I would like to welcome Sergey Kuhn the co-founder of one inch Network foreign the co-founder of sommelier

and faustin floron Adams president [Applause] so thank you so much everyone here to be present we're going to have a very interesting debate at least to our opinion decentralization and how to speed up in light of Regulation so first the first question that I would want to pose it's a very basic one what is decentralization why it matters and how it is influencing your everyday life like the life you're leading as a Founders and leaders of your project so maybe we can start with Sergey uh sure

hi everyone uh first of all it's a pleasure to stay here on stage so regarding decentralization this is a kind of um thing which is still in development uh we see you right now six uh mining pools on ethereum which actually three three of them can just put together and decide on something and scam everyone and this is actually ethereum is not visualized from our point of view and it will be very soon like five days I hope so it will much be much more decentralized than right now this realization for me is it's a set of

actors which have the same world for you yeah it doesn't matter where they are and if some of these actors decide to to like do something else then we get kind of fork in the new branch and uh the the best most most efficient um most valuable Branch would win yeah just what's happening in the forks of blockchains we have seen Bitcoin Fork uh to bitcoin cash and at the end we were still the the normal Bitcoin branch which is the most efficient one and we have like uh uh additional Fork of uh Bitcoin cash

yeah so uh the same happened with classic yeah ethereum plastic and ethereum itself so and very important this uh setup is that there's no actual actor which decide everything because this is a vulnerability uh for for this set of this system or ecosystem that someone just decide what a gut feeling maybe maybe by getting some cash from someone or some benefit or was threatened by someone and they can maybe decide something what's not good for this ecosystem that's why the sterilization very important also for us from one inch we came to the idea to introduce the

governance which is kind of still in development also for other projects it's a still experiment but from open of you such an approach of decentralization and governance and and kind of uh ecosystem could help also in the real world to govern countries maybe in the future companies least as well yeah thanks thank you what about you for Steen you are working with Adan which is organization working with Regulators how how is it impacting your your work what do Regulators think about decentralization

um as for now I think Regulators don't think that decentralization exists actually and it was hard to convince them that there was a decentralized system that was growing aside from the traditional financial sector if we look at the regulation that is currently being built at the EU level at the very beginning they were not aware of these new paradigm so when they thought about this regulation they vote about the regulation for middlemen for intermittarius and at the very beginning we had to explain them that there were

decentralized Finance growing and it was working very different a very different way than traditional Financial applications and so binaries they got to know those new protocols and new actors but they did not really understand if decentralized really exists if it was really possible to run Financial applications on an in a decentralized way without middlemen without intermediaries and that's why Mika debates were really complicated TFR debates were really complicated it's because Regulators still need to understand and are still looking for people behind those protocols and people

they could impose rules too so there is the operator of decentralized platforms can we find them if developers if go people behind the governance can be people obliged to the regulation because it's still very strange for them to to to see this new Financial part like this new decentralized paradigm so I think we still need lots of Education efforts from the industry to make them understand this new word and to make them understand that the rules that we are being that we are building right now can be the same than the what we applied to the traditional word otherwise it

will be an adapted inappropriate and we won't be able to develop that in Europe in a way they're used to centralized entities and decentralized ones are very different from what everyone has been used to for years um what about sommelier and your work so I would say that there's basically I I would Echo surge's views which is there's two basic things that can tell you how decentralized or whether or not something is decentralized one is how is it's this and this goes to like sort of how resilient it is like how does the system perform under stress or under uh

duress or in a disaster and basically the question is can you replace any of the actors within the system and the system would still do the same thing so can you could all of these stakers in a proof of stake system leave could a new set of stickers come would anyone be able to really tell the difference between the system with that set of stakers and another set of stickers if the answer is no um then you you have a decentralized system same thing with you know develop with the software development right like if you have many different entities that have been collaborating if most of those entities are switched out with other entities would they still be able to you know develop the same software and accomplish the same thing provide the same services to users so it's

ultimately there is this test this test of resilience um about you know and so you know we went through this process with you know the cosmos ecosystem of of the of you know most of the developers leaving their uh uh the uh original company the built the cosmos Network and the cosmos ecosystem and the cosmos stack um and yet the system still uh is is thriving you know two years later you also have this this other question which is this question of constraint which is you must you have to convince a very large number of people anytime you want to change the system um and everyone involved is able to dissent uh on Twitter on various public

forums there is a lot of arguing and discussing about everything and ultimately you are meaningfully constrained uh similar to the way like uh Constitution constrains a country or a system of uh sort of multi multiple branches of government constrain each other in a decentralized system there are systems of constraint that constrain what any actor can change about the system and it takes an enormous amount of sort of essentially political leverage and and convincing before anything could change in the system and so I think both of those properties and so you know such is life um so you know I am part of more than one multi-entity decentralized community that like we all work on software and

protocol changes and marketing and onboarding users onto sommelier and onto Cosmos so that's one aspect of my life is constantly being in these multi-entity uh collaborations and then on the other hand I do like to make build protocols make protocol changes imagine new tokenomics all of those things and that has made me into this sort of weird developer politician that I think many people in the blockchain space um are are learning more and more what it's like to be like and some people don't want anything to do with it and other people thrive in this ecosystem thank you so much so the title today is decentralization and how to speed up in the light of Regulation why I think to my personal opinion this panel is very important and

it's very timely because we have not seen so much regulation in so many regulatory activities happening before and it's just the beginning so in Europe we have had the markets in crypto assets regulation which is basically regulating the issuance of crypto assets and crypto as a service providers agreed upon politically which means that will become into action applicable in 2024 the same with the transfer funds regulation and there is an AML package Etc also in the US we have seen a lot of regulatory activity and I think it is very important for us to stop a moment to

look at what's happening and to understand what could be the strategy to move forward especially when it comes to decentralization this time I would like to start with yuvastine you've been working also in in France during the presidency so in Europe it is very important which country is presiding the council and we had so much experience there but also on the European level what is happening like what is uh you know where the summary what have you seen in the last year for example on those issues so that's what you said Marina we agree Devon's political deals on two major

pieces of regulation for the crypto asset markets which are Mica and the transfer found the regulations and I think that we avoided the worst case scenario with those both pieces of Regulation because actually people who are working on building those regulations are also trying to understand and to learn about what is the crypto asset market and that's why sometimes they have ideas that are not always a good or appropriate and at several stages of debates it was question of should we include in the scope of those regulation the decentralized finance those regulations were not made for

decentralized applications because those were rules for intermediaries and it would have been very detrimental to the development of the ecosystem if defy fell in dimika and the TFR scope but that were questions that regret those ask and the good approach is that the reached the representative body either in UCI to understand it if it was the right way and finally in this political in those two political Deals they decided not to put defy in those in the scope of those two species of Regulation so it doesn't mean that defy will remain unregulated it just means that they want

to take the time to think about the best the most appropriate and the most adapted regulation for defy uh so it means that from now so we have those political deers on Megan GFR so the work will go on because we need to write those texts it will be a technical work right now and I do think that the industry must be there to support the work of regulators uh European institutions so that the texts are the most the most appropriate so there will be those technical discussions on Mika but we also we are also on the weight of Mika 2 where defy will be will be treated and so we will now have to

support the work of European institutions who will think about what could be the rules for defy but also of other International bodies like ioscope which is also thinking about what could be the framework for defy it would be the same for entities but it's another topic and I think we avoided the worst also on TFR because at some time it was question of regulating P2P transfers and ask the whole set of information that you're asking which when you're doing transactions in the intermittent way so we do need to take care because on those questions even if we had this great victory in

June we know that not all European MP are uh passionate and positive about crypto asset markets and their developments and so we need to take care that this question of um regulating P2P transfer does not come back because it's really possible so I yeah my main message is that the industry must be ready with all this work that is coming for Regulators where they will need to have the information and maybe recommendations from the industry and so that we do need to have a common message to frame the best regulation because unfortunately it won't left unregulate

it so we need to get prepared nobody is going to do it if we don't do it like this community should definitely be the one that is talking to the regulators and explaining why decentralization matters and and why it is important um so going back to the community do you feel um this is a question for both yuzaki and Sergey the community has a consensus on what decentralization is and what should be the strategy um especially when we think about regulation so what is we know decentralization is a spectrum we know there are different layers when it comes to blockchain there are different projects D5 as Lego

protocols what what would be the strategy what would be your let's say view or or advise on this would you like to start talking what's up so I guess I come down to what I view as like sort of my mission in this space which is stood like summarize is that we should try the purpose of blockchain the purpose of decentralization the purpose of decentralized Finance is to take the infrastructure of digital markets and make it an open source public good like and ultimately all of this is just uh uh uh uh like everything that we do is a means to that end I don't know oh that my experience has been is we as an

industry like I don't even know that any other people in the industry share that view but that's my view and that is the view that I try to sit here and promote to Regulators as like what is the end game here like why do all of this why why change anything um and the purpose of changing things is that digital markets are eventually all markets um all markets are will be digital markets and if digital markets are are institutionalized and run by Gatekeepers and rent Seekers like that we will be enshrined in society and this is the one opportunity that we will have have maybe in the next you know thousand years to change what that looks like and to try and find decentralized market mechanisms that actually work that allow people to

trade and to find counterparties and to exchange risk unexchanged assets uh in a way that is part that is basically becomes part of the fabric of the internet uh from our Point of View Community um don't have uh kind of come the the the view how to shoot looks like yeah and um this is kind of very very difficult thing um when when the regulator came they tried to kind of limit functionality yeah from from one side uh to protect retail customers maybe also

institutional customers because we have people who can also Act in in terms of like yeah yeah can can still Manic and abuse someone and for sure they need to to regulate to protect the people but from other side over regulation is also bad and uh and from one point of view you should be prepared for the regulation but we should also teach her you said you should teach The Regulators um what yeah what we have right now what we are building we are innovating we have uh in in the last like five years a lot of innovation happened in the space

we got automated market makers um we got a kind of decentralized approaches how to interact with in peer-to-peer manner uh to to exchange assets uh we got also a really nice technology to to get more privacy on the blockchain in terms of tornado cash and uh and now we see that yeah regulator can be also very strict and to react from our point of view not in the best Manner and just put the programmer into the prison just because he wrote the quote and yeah

this is still kind of however it said before experimental and we need to to communicate also with the regulators and they need to to be much faster than they was before because now Innovation happens every month if you like one year in D5 or 10 years in traditional Finance I would say so uh yeah we need to improve that do you think that regulation is going to open new possibilities for Designing let's say protocols products or you see more limitations on this side I would say there are limitations yeah so the cool thing in D5 is the freedom

so you can just write over tonight like I am my co-founder random book of in New York on a hackathon over two nights and a new solution new innovation by aggregating digitalized exchanges by using algorithms you often actually over two nights a new market aggregation Market which didn't exist before in this space and and strict regulation would wouldn't like allow us to do that yeah and we just build it and start people start using that so we build it in most kind of decentralized approach so it didn't matter that we were still there this program would

still work it's the first version of of one inch would still work without us and this is kind of what decentralized uh systems uh has as a benefit kind of um yeah I don't think so that it makes something faster it makes slower but it makes sense to regulate to protect people yeah but not too over to play it it's okay what do you think it was regulation it will in a way as we see maybe complicated uh or is going to be harder to to be compliant do you think that

early project we're benefiting for being there first for being the Pioneers for example um so I do you know I mean there has been a a pattern in in this industry in general where uh early entrants got uh the benefits of asking forgiveness and not permission and to not having even like regulatory structures that even described what they were doing um in the early days and that has generally been an advantage of of uh to being early um but I think like one of the questions again is

the guidance the goal when communicating Regulators is trying to say how do you get the social benefit like where do you where is the point of maximally leveraging the social benefits while minimizing the social harms and The Innovation aspect of it the permissionless aspect of it the ability of anyone to write software that then becomes part of a of like a deployed money-moving system uh I think is like one of the most valuable aspects of the system because of the fact that we're trying to discover like what the future of digital markets will look like uh we have to we have to have people you know without having to you know you know hire an army of lawyers and stuff like that

be able to just deploy software because that is that is the Innovation cycle that and that is the world in which we're building things that are actually robust um but that crossing the chasm from ordinary users to like the ways in which the chasms gets crossed um from sort of or from I'm like the people who are the sort of D5 users and defy creators and the people who are comfortable on chain to the like sort of regular civilian world that seems to be a world that like Regulators should be paying attention to and we've seen the disasters like what Celsius that have occurred between companies that have been sort of bridging these worlds and not necessarily doing the most correct job of that

thanks let's focus a little bit on the recent events of tornado cash and the ofak sanctioning tornado cache um how do you comment those recent events and what I'm mostly interested in is you know what we have seen in the space different protocols projects how did they react to those events um I've heard this term over compliance a lot in different debates on Twitter and podcasts what do you think about it and another question is we're in Berlin today in Europe so those sanctions were aimed at the U.S persons and entities

what does this mean for Europeans and what does this mean for European users who wants to start I would like me to start so the thing is offic added contract addresses to the list something also something new would didn't happen before they didn't put the developers they didn't put the company which was yeah kind of acting as Labs software development company they just put these smart contract addresses yeah and I guess some some people from offer posted also on Twitter and deleted a few minutes after it that yeah the tornado cache was

paid by by supported by North Korea or something like that without having improved or yeah I don't know what else it was it was crazy so I I have I'm scared I have here personally because based on this action from offic Netherlands just take took to one of my friends into the prison because he wrote the half of the front end called JavaScript code he didn't deploy the smart constructs he didn't govern the smart contracts I didn't run the front end because it was on ipfs and and also managed by the

community and they just put them in the prison and try to find out yeah how we can uh yeah do what should we do with with him from our point of view so and um from happening attack free speech and also privacy because tornado cash is actually based on the other project which they they use a lot of open source code to build tornado cache and in in this is an innovation in in our space it's introduced privacy on a blockchain which is actually partially existing with other blockchains like zcash and and some other blockchains but on top of ethereum privacy solution which helps you to hide

your transfers which makes sense so for example with a Libertarian did a charity contribution to Ukraine and he of course didn't want to show that because it can be dangerous yeah so if you're if you're flying to specific countries you can get troubles because of this yeah so uh also yeah this is kind of basic rights of a human to have private privacy and free speech and I think they acted like too fast and too aggressively they maybe should speak before with the with the community about that before

starting such actions yeah I'm scared personally because if every software developer open source software developer can be put put it in a prison just because you've wrote part of the code then uh a lot of people are right now uh under attack I would say there so okay so a couple of things one aspect of this is that I do think this this this seems like the most sort of Regulation aware time in the industries since maybe 2013 um sort of I remember you know they're back then there were this question of

whether or not miners would be money transmission and this whole Like Money Services business money transmitter thing was sort of worked out in the U.S and eventually it seemed like we achieved some sort of equilibrium that was acceptable for Innovation and now this like one particular set of facts which is the sanctioning and of of of uh of a smart contract address and a developer have like basically reopened like a lot of uh of uh of debates uh or like a lot of has created a lot of a level of anxiety that it might be unfamiliar to people who join this industry in the last you know uh nine years but it's less unfamiliar if you

have been like following The Saga of like Tor and pgp and the development of like encrypted messaging protocols that these sorts of frictions between uh the government has been part of the cypherpunk movement for a very long time so like I think you know in general like this is kind of more to the norm I think the other thing though that's sort of is is whether or not these are like this is like a good set of facts to generalize from so like to the question of over compliance right we're trying to figure out what it like a lot of companies that want to comply or like do not want the attention associated with being viewed as like sort of a non-compliant actor

because they have other regulatory concerns there are a lot of people who are like okay like these are let's try and generalize this like what does it mean how would we even apply uh uh the sanction like of fact II which ofac which this like the authority that was used does not seem to provide the ability to sanction a software interface um uh which is what was done it seemed to only provide a mechanism for sanctioning like a definable entity which doesn't appear to be sanctioned so this like there seems to be bad law there seems to be bad facts uh there seems to be a systemic misunderstanding of how tornado cash worked um all of these things are going to have to be worked out through uh litigation

along multiple lines but like these are very difficult things to generalize and these are very bad like is a very bad system to generalize from because it seems like just like there's insufficient understanding applied unlike uh uh on on sort of many sides and this is going to have to be worked out um that's probably my like main thought here is that like we we are trying to generalize from something uh the other thing though that was surprising to me is like it you know for from years of Building Bridges um like this is sort of Downstream of like basically the bridge insecurity problem that like bridges are hard uh they're difficult to build securely we have in this like last cycle built many

insecure Bridges and I was sort of expecting that there would be a lot of attention from Regulators on the bridges themselves because of these Bridge hacks and it's sort of a surprise and somewhat unexpected that instead it like all of the attention fell on an anonymity provider interesting Christine what is happening in Europe what's happening in in the U.S in terms of AML reactions to to decentralization [Music] so this story Rose lots of questions but first we have to say that there was there is a regulation in the United States there was this ofak decision and it was normal

at some point that obliged entities complied with this decision so that's why centralized platforms had to comply with this decision and the questions that it proved was that at some points I agree with you it went too far actually because some non-oblier entities to the ofak decision had took actions so for example some decentralized entities and some actors that are not even in the scope of the the future regulations I'm thinking about for example GitHub who had this decision to remove the code and actually it has no nothing to do with the offic decision so it went too far because some companies

decided to take actions and actually they had not to and it went also too far because I had some points not only U.S citizens were concerned with with the the decision and the actions of those obliged and not obliged entities so it was a question of the also the influence of this of fact decisions that is the U.S Authority on other jurisdictions and also also because we are in it in the current EU building of the regulation so actually we are afraid of the wrong lessons that The Regulators could take regarding this this story so first

thinking that mixers are bad actually mixers it's kind of a technology it's a technology You Can Do the Right Use or bad use and actually it's okay to do a regulation to prevent the bad use so the and the money laundering and the financing of terrorism through technology we have to but we can say that the technology is bad so we hope that it won't prompt regulators just to prohibit for example the the development of mixers uh in the in the future and we also do hope that they don't have the idea to look at entities that had nothing to do with regulation so the developers people

behind the the governance mixer as a as a tool and that they concentrate on the bridges the people the the intermediaries that are able to limit to prevent and to fight against money laundering and financing of terrorism so we do have to pay attention on the lessons that they will take following this story and to to make them understand uh yeah that we still need for privacy reasons for many reasons those tools that can be used the right way they can be used the bad way but we need them for the development of the of the world centralized ecosystem

I just wanted to make one comment which is I'm not sure I agree with the characterization of tornado cash as a mixer and I'm not even sure if the like so uh like another department of the U.S treasury called uh fincen actually did in official guidance Define like what a mixer is um and tornado cash does not meet that definition um it doesn't commingle funds uh like you're you put your money into tornado cash you take your own money out of tornado cash you do not have access to anyone else's funds and no one else does um and so I do think that like uh uh so you know again it like represents this like very interesting conflict between

and you understand though like where this came from right you if all you see in the Press is oh like North Korea is wandering money and using the service like the people who who do North Korean money wandering and anti-proliferation work have to do something um like it's not unexpected that they did something uh it's just like we there probably could have been like a a better education by the industry about in an attempt to try and figure out what could we actually do um because I think most of us agree that North Korea having large amounts of cryptocurrency is a bad thing so tonight had also uh compliance tool so what I would imagine that for example

someone needs to cash out and see I like this person used tornado cash then maybe binance where the person's cashing out would like to ask for the compliance proofs on tornado cash that this money is coming from the other wallet it's it was possible yeah and did someone use this privacy Tools in in that manner doesn't mean that you have to disable and to to to to destroy this tool itself they are did they have any way to cash out somehow yeah and they can follow through this financial institutes where they cash out yeah yeah so we have three minutes left and I have a very easy question for all of you and you all have one minute to answer

how to speed up decentralization by on the morning new new people new developers uh new users of course to onboard new users we need to to introduce institutionals in the DFI space that's why we need kind of a regulation which is not overregulated uh but compliant with the institutional find real world financial standards and then you will grow I think that the we still need to make leaders political leaders Regulators understand the opportunities behind decentralization

because why do they why they don't hesitate to to imagine very strict truths or an adapted rules that because they don't understand why we should let decentralized application defy grow and what's the opportunity for Citizens what the opportunities also for regression to build upon the technological opportunities of blockchain Technologies and crypto assets so I think we need to onboard also our leaders our Regulators to make them understand why it's a strategic for us to let them develop and why actually it will develop anyway and if for example in Europe we are too

strict or our regulation is not balanced between Innovation and protection actually it will develop some awareness that's all and it's a pity for for our industry actually I guess the main thing I would say is more people in the space need a little bit follow more leaders in the space we have a responsibility to sort of ensure that we are creating spaces in which decentralization can prosper and that we are giving up more of our own power um uh you know satoshi's example is very instructive about sort of giving up leadership in the community at certain at a certain point and I think most of

us would have to more of us who are leaders in the space have to think about at what point would we no longer want to be the leader it would be interesting if Satoshi would be still there if someone would come for him thank you to all the guests and thank you to everyone staying here with us on the last panel today [Applause]