Legal Troubleshooting for DeFi Projects: Data & Results

Transcript

e CC check check okay [Music]

yes my screen that you can see this lines I'm sure there are many people no

unlike yourself but since I can't see you let me just introduce myself so my [Music] [Music] [Music]

[Music] just the differences today I'm going to provide some results of because I gather a lot of data from I think around 40 participants of that workshop through multiple polls in which I was asking people about various things related to understand because I think so we can do this well this is this is also remember last year

at FCC I delivered introductory presentation to by defining the law and I think that it's all simple when you to place anyone's trust it so just start with a short disclaimer obviously and this is obviously not legal advice and use are my own perhaps that's the most important one my role of course food for thought what I'm presenting right now to you is just my own perspective so just let me

stop here before I start the real content because I really like concrete examples to prove it that's the first one that's

the publication that is you know almost year old published by the Financial Stability Board FSB and for those of you that don't know this is a kind of international that is coordinating financial regulation on the clock so for example the main cornerstones of financial are you reformed after the financial crisis were developed these guys are doing with this really broad topics of how to approach the largest problems or challenges to the global financial regulation and this would be published in June last year they report about what they call the centralized financial technologies that's a really general you know paper that is really applying some

broad thoughts about this and also I'm not sure if data understanding of the centralized financial technologies is exactly the same as what we understand when we say define but still that's something that is already on the agenda of these guys and right now dear brother in terms of these things they're rather focus on stable coins two weeks ago I had some first adventures with coronavirus when attending there or after attended their workshop on unstable coins because they're working on the global regulation of stable coins but I'm sure that sooner or later Turk and I get to define and my guess is that

is gonna happen brothers in them and here's even more concrete example that's a screenshot from the website of the European Commission and this is a public consultation that was launched two months ago about the EU regulatory framework for crypto assets and that's something that this one as I said for two months already and and the period and in two weeks from now I'll do it more in two weeks I think and this is about you know about broadly understood crypto assets the consultation itself it's I don't know I

can't remember right now much more than 100 questions related to various aspects of crypto sites also some of them very crucial from the perspective of define and now it's just the EU perspective I'm mentioning it here because you know the conference in Paris and I guess that many people are interested and it's gonna you know it's gonna be it's going to define the EU policy framework for crypto in general if I included for the years to come because it's obvious that after this consultation is ended later this year we're gonna see concrete or with our proposals and you'll see what you know

comes out of it I'm gonna be Brussels next week perhaps learn more but what is what this key is that regulators and policy makers lawmakers are getting to the topics I know and even if not all of the questions are majority of this question do not realize that there do not relate to define then relate to very you know to some relevant topics relevant from the DFA perspective so in my opinion that's something that I was already trying to convince you to last year at DVC there is still time to act I was saying that a year ago now it's even more true with with you know two weeks time to respond to this consultation and I would

regard anyone that is working on anything related to define alright blocked and crypto and finance in general to really act now and to see you ever pay the student you take part in this consultation and other consultations and other initiatives that are also happening now or will be happening later and what I was trying to convince it last year is that we need a certain you know like defy is a certain movement that we need movement to be heard unresponsive from as well otherwise our voice will not be heard and our problems or things that we need to do with will not be solved or or rather more problems will come so a

formal a disordered proposal later on but now let me move to the main content of the presentation so I proposed six problems to the different community those people that attended my workshop these are those troubles problems challenges in my experience which was rather confirmed by the participants and I didn't feel the need to add anything now but you know super happy to do that if you see something tonight

or for some reasons I can't see so what I'm gonna do now I'm gonna describe each of those legal troubles providing some examples and also you know which really if I community you know sees these problems and what kind of solutions are proposed and now this is this is as I said that's something that I'd like to publish at some point of time because I think that's very useful and really provides a very good outline of what's going on in define what's relevant from this Roberto perspective for now I

really want to continue this discussion so you know this is this is something that I really want to discuss with you and first personal parties that makes it much much more difficult but at least looking forward to can a at the end of this presentation and also penny for their interactions but because I'd love to discuss these matters with other people that are doing or working on different projects so the first trouble or challenge perhaps is the this is a better word it's a front employability which really means that very often we are focusing on define in a way that we are just faking about the smart contract

layer but the truth is that many users if not the large majority of users will come to defy using for respondents and this front-end front ends this far are not that decentralized right they rather working like like traditional internet platforms so that the resistance surgeon provider that this you know displaying everything providing this front-end is you know using some simplest tools to display the data from the blockchain is very often earning money doing that right this building fountains that connect to various protocols and very smart contracts from from various projects and this is something that is

not explored that far because we like we like to underline that something is decentralized and permission wise but the truth is that this front ends current and the question of liability now this fronting providers is really open many fronts also on the regulatory front and in the context of the run of the currently running you know consultations and all this regulatory policies that I mentioned I I guess my estimators that this is going to be one of the key topics for example you know the question is how to enforce a low the blockchain right and this example is the obvious solution is to do that on the front of light right that's

something that has been happening always it certain gatekeepers were subject to AML and front ins are possibly the only candidates that can be you know that can make this back complying with this regulation so not trying to scare anyone off of course just mentioning that this is something that is not solved yet and I think that there will be some regulatory focus in this particular part that's an example and let's see how how people see this problem at least those that participated in the in my workshop at that gun so 64 percent considered problem before which was a surprise to me but you know larger majorities think

that this problem is either relevant for them or for the entire edifice space which was you know large majority of participants and what's really interesting that the most interesting points part about this this work so debated where this word is you know part all regarding best solutions because people were actually able to you know propose their own solutions and vote for solutions proposed by others so in that way we keep those that you know gotta move it largest the largest amounts of votes that was interesting because you know that was the community we didn't have time to discuss that that's why I'm

looking at so much to this discussion within the design movement so leading proposals proposed solutions were first trying to influence and change regulation and second was multiple fountains this try to influence and change regulation that's you know that's that's a really interesting one right because it's really shows that contrary to some cues people in defy are willing to you know somehow interact with the existing regulatory system and that's exactly something that should be happening now right because at the moment we already

have the questions they are even being asked by their regulators and policy makers in this consultations and in other ways and we need to participate right we need to propose something because it's easy to say influence and regulation but how exactly right we need to really you know take the lead here and try to do proactively because I do this with the solution trying to proactively influence and change regulation and now the second most popular solution was multiple front ends which is really this you know building of this narrative that protocol a year and content layer are separate analytical from that's only you know

supported view that's you that it's separate on the right protocol but of course it's not a solution by itself right because even with multiple front ends you can think about some stuff that the front end provider or the front in the practice is responsible for other solutions as far as I remember included for example using IP FS in DNS which is obviously one like a very good solution right just decentralize it from that layer as well as you know for many reasons we we don't see and the user experience is something great right so [Music]

and you know you know this is something that others are taking because you know I mean you have some hybrid solutions

[Music] because this you know this you know which is not in combat finance and

that's not exactly device problem right because many CDPH is something completely underrated right building some big not within traditional income in finance but you know some vectors are different to the existing financial sector but you know we are facing some practical problems and you know for example the front like the problems of the security token specs right so that may be for a really long time but we really can't see this market taking off this is due to legal problems as well right

because in defining we like things that are permissionless but traditional assets on the financial on the financial markets are permitted right and this is both legal and technical problems how to connect this relative how to make permissioned assets traded and permissionless infrastructure which is really a problem of defense well right because we really want to see these assets in our space right because only if that happens this space will grow as we as we as we wanted to so an example here is what like the discussion that was taking place last year with the maker you know how to include non

trustless assets in MCD right isn't that a problem for maker that some permissions staff will be you know somehow included in this completely decentralized in permissionless infrastructure and that's a conversation that we need to have as the entire defy right whether whether we want that to happen or not and there is you know a strong legal side of this out of this thing so only 44 44 percent have considered this problem before but already 71 percent think that this probably settlement for them and began one percent felt that this problem is relevant for the entire edifice space which really means something right

because it means that people are really convinced that this is actually important for g5 and here the solutions proposed and and you know those most popular ones were regulate on the edges you know one may wonder what that what that actually means in this context but I think that you want to understand that in a way that we we are not trying to you know regulate this permissionless and this implies infrastructure but we somehow you know regulate that is in a way that we provide certain you know connection points with permissioned aspects such as permission assets and we only regulate those edges and then some books facility was another solution some

boxes you know it's it's great right but it's not that obvious how exactly that work but you know that's I'm thinking about it as another you know postulate for closer conversation with regulators and policy makers right because what's best in some boxes is that you have this direct access and you can test and discuss some stuff directly right and this is something that this needs right but none of those are some you know ultimate solutions that will solve anything right we need to figure that out and around and as we see this is taking taking time and I think really needs like more more thinking about that on the legal side because it's great to

see the progress of the technology on the financial side for example with regard to synthetic assets but it'll be right if there is some progress on the legal side so that people figure out how to really connect define with income and finance without losing any of to defy principles that are important for us no trouble number four this is global compliance that was not the focus to add to everyone as well that's that's a certain problem that you know solutions that we are building within define our global by different nature right they are they do not know borders at the same time as

we know a regulation is not global right it is regional or rather specific to to individual countries or very secretive such as that you and that's a real problem that's that's a fine example here from the Uni swapped front-end units of that exchange that this is probably know some some countries like mostly those that are covered by some international sanctions regime that's easy to do right at least at the front and level a little bit more complex to do something like that protocol and smart control over how to you know how to comply with with some you know fragmented regulatory regimes if you

know that's what you're going is permission less open and just available to use by by anyone and that's a certain mismatch that is causing already some problems that will cost more in the future I also have a counter example because we see you know we have some products very popular within if I'd like time the total global and you know ultimately with the foundation to spar with successfully managed to to maintain this you know global character of time that really requires a lot of effort so you know it is possible but through hours just you know proper strategy and pork so here the numbers were high

eighty-eight percent have considered this problem before hundred percent fall to this problem was relevant for them and ninety three percent of this problem was relevant funded for identify space and now there were friendly responses that the first one in particular it was it's not a problem it's an opportunity don't want but regulation to this goal which is really far because if you it's better if you have at least certain countries and regions in which you can feel safe about what you're developing and having a global bus regulation right that's first true that creates some some opportunities as well but look that the second most popular solution proposed namely global standards directly the opposite right

this is like advocating for for global standards so that we can one framework with which we can comply of course this is not possible to have like one global legal regime as long as we don't have a global government and it's gonna take some time before we get there if at all of course so you know we can see that there is no again there is no final solution or ultimate solution to that there are some you know differences in how people approach this problem perhaps it's something that needs to be approached by each individual project by themselves but I think that we have like we there is at least some common ground that we need to find right because this

is an obvious question how do you comply with your project in a few different jurisdictions one answer might be the different entities need to comply with it's not the airline protocols right but in order to push forward for it we will need to you know well forget from its problem number five out of six this is this is developer loyalty and here's example I think that everyone knows what that mean but here is a practical example this is this is the the the UK's consultation that took place last year about the

transmission during because that's you know implementation of this legal art might cause some havoc among t fine but it's possible that it's gonna be positive we'll see what was included in there just to you know let you know what what this problem might be is that you know they were wondering whether some new you know some some we provide there shouldn't be taken within scope regulations and in particular and what they asked about on new category that they asked about was was about you know

people that are to eat like that are published in open source software which includes but is not limited to none costigan Ward software and other types of cryptids related software sounds crazy but that's something that is you know already being mentioned from time to time right and that's something that is very you know might be very dangerous because you know really thinking about open source software as a source or like creating publicly or deploying open source software Isis sources regular obligations is truly a new concept that was not tested in the practice and I think it's obvious that you know it

might cause a lot of problems so regarding data only 64% have considered this problem before 73 that think that this problem was relevant for them and 93% of the this problem was relevant for the entire defi space and here the two most popular solutions first educate we're just really needed you know we really need it I think that the realm of developer especially officers developer needs to be properly understood by the regulators and that's our task to you know educate and then the second solution was anonymous tasks which I believe is like would be like a

last resort solution right I think that we should test the other ones before we get that because it's not really a solution it's about you know I think the Trumbull number six it was about like various particular legal barriers that that's you know for the device in the device space and just two examples the first one both like both from Europe so that you you know I guess that those might be more relevant or for many of

you the first one is about a certain requirements related to publicly traded securities Indy you namely that they need to be recorded in book entry form in a central securities depository which really means that if you have a publicly traded securities it's really difficult to trade them on the blockchain because on the blockchain country also serves as a settlement layer right like train and supplement are so they're almost the same independence of watching in the traditional market trade is happening on the exchange for example regulated market settlements Suman is taken by cents per se is the right and this kind of requirement hard-coded into

the law you know is really problematic and I really hope that this one of the positive results will be that this will be somehow dropped in some way or another you know the second example this is you know GDP are is the word that I promised to myself so many times that they wouldn't use it but I just I just have to this time that's you know many know that keep your inbox in are not like priests player they are talking about the same things on the executive

layer Katy Perry's really really difficult to combine with blockchain which is also relevant for financial services and defiant so the data here is that only fifty percent consider this problem before like various legal barriers not a really hundred percent of its problem was relevant for them and also quite a number 87 percent of this problem was thrown for retired if I space and I I assure you that this is relevant for you all right this is very likely that's relevant for you because now really legal barrier slated to launch it if I approach defined products especially if

they somehow connected to real financial markets right it's just that these regulations that the existing ones are just not well suited to to to you know to appropriately cover block based solutions sometimes a certain interpretation of device now something that sometimes not there was one most popular solution which was educating lawmakers and regulators which is possibly the best one again my educating is not enough right I mean the real action is needed and that's something that I mentioned that the perfectly these are the problems that I thought about those

people have all told you about now and I can see I'll be I'll be finished because I'd like to see some discussion if that's possible there are any questions or comments briefly about next steps first of all you know this is called for action - you guys take part in this you know so even if you're on a base outside the you you know this is a big market and you should you know contribute to defect layers trying to bring positive change to the you regulation and black negative change so so take part in tops

you know if this is not a huge effort because you don't have to answer from 200 questions you can just free offended irrelevant for you and feel free to reach out because there are a few initiatives of making the combined response to this consultation and others as well so you know it's always better always best if we come as a group and our voice is much stronger then we'll be right with you if you if you have some thoughts about the this legal troubles fortifying and especially if you see separate problems or you know some solutions also return because I'm very interested in ensuring this and and you know really seeing this discussion

happen and also all these things that's something that for a year already I am planning to to deal with almost special block that is codified at law and perhaps at some point of time finally don't you find if I find some time for it so that's it at least with regard to my presentation and now I believe that we had just a few minutes but if there are any questions or comments they're very welcome okay do you hear the mic you heard this mic no you don't hear this my

geyser so unfortunately the mics don't work so I can do variations thank you my question is it seems that there was or there still is this view held by defense and in the US but also the Phinn also the federal government of Switzerland that the AML regulation would only apply if you have custody if

your power of disposal over it's not that strong in some other countries and

I think that we are gonna see we're gonna see the final framework emerge in a year from now when we already know how the recent guidance so like fire fat is this intergovernmental aim our organization as you probably know how their new guidance which relates to crypto is implemented across our jurisdictions what follows from the fat guidance is that indeed it seems that they are let's say honoring this approach or like where you're thinking that non-custodial solution shouldn't be subject to a no but we're gonna see how this is how exactly this is implemented

in editors the keys so in some of the some of them when when we're this is already implemented we see that indeed the approach is to focus on customer solutions and noncustodial solutions are not subject to regular scope but it really depends you know it really depends where and we don't know the final picture yet because you know this is not implemented everywhere so this is part of this global compliance problem in my opinion that you know you really see a diverging approach we'll see whether it's going to be more consistent over time but the good side about it is you know at least you can probably find

one or a few jurisdictions including major jurisdictions in which you you able to follow this strategy hi thanks for the presentation a little bit scary it about I think it's a problem number six which is related to putting the records and the CSV books I mean what it means for me is that like it's not possible like created or that's that's a major obstacle that many people

are talking about and for example in Germany there is quite a big discussion about it for quite some time you know that there is quite a big awareness of this problem already which is which is giving some hope because perhaps if you know if people realize that problem already you know perhaps the solution it's not that far away there is a so I would I would say three things three proposals first consider coming to Frankfurt for a conference next week it's probably the best conference in Germany and probably the second best in Europe after if CC and we just really focus on also traditional finance and this problem I remember that last year this problem was

really discussed and I found that this year there is there's also gonna be some discussion about it second participate in this consultation because they are asking some precise questions about C's this is this and their suitability with you know in the context of blockchain right so this is you know if you're interested is in this this is precisely the type of question that you should answer this consultation and provide reasons why do I you think that it doesn't make sense at all and third you know as I said I really believe that this consultation may result in some changes and perhaps not completely dropping this problem but at least you know opening the door a bit to blocking based solutions for security straining

so but at the moment you know I really have high hopes but at the moment it's it is a big problem excellent serious all right yes living the Magic Man thanks a lot