Janina Pietrowska, Raphael Züger - Regulatory considerations and challenges in DeFi.

Transcript

first um then I would I would pass the floor to um to Rafael who is supporting me here today thanks a lot um because I'm going to to cover mainly the EU the MAA part and and Lin part which is a part of EA and Rafael would cover Swiss part of regulatory considerations for let's say major D5 features which which you know um so these are these are us beautiful um crypto team of lindman law from in Siri actually uh but but I've been um working both Switzerland

and lonstein have three Masters um my third my second master in law uh third master in general at the University of lern I've been working um at the law firm in lonstein and now also joined as partner the lindan law firm January um did you introduce yourself or would you okay when when you do your part you you definitely can do it we always do the disclaimer that this is not a legal consultation uh by by all means especially in regard to defi because this is really in a gray area a lot of a lot of features are in a gray area and we will tell you why and we move on do you see oh that's that's bad because I see the definition

but you do not see it on the screen okay well that this is a good point to ask a question guys what what do you understand under defi are you somehow involved are you it people developers okay that's good the rest is um Academia Academia that's great that's great um economics law okay good good so very um diverse ified background that's good are you somehow involved with D5 have you heard anything about it you are involved could you tell us what you understand about it how you would Define it um there is no no definition by all

means of defi but that's good that's good we're going to talk today about custodial and noncustodial approach especially for staking that's good already um maybe I could yeah that's what we have here I guess it is it is there is no like standard definition there is bunch of features or let's say um technical applications involved which are covered by defi but in general it is where the centralized intermediary is no more there and most of the users interact beer to beer which has both advantages and

disadvantages and the okay wait we have straightforward the regulatory landscape in Switzerland um what are the features of defi that that you know the the applications of defi that you know any examples staking do any of you stake any of the assets okay that's that's look looks nice we we would ask those people when we talk about staking they will explain us how it looks from a technical perspective maybe uh liquidity pools yield farming okay that looks nice we also have some people to ask so that they

could give us a technical perspective maybe or at least their perspective um okay um what do we have else we have all of those beer- to beer transactions and the thing is that there is no qyc on IM or IML uh checks done which is which is also problematic because we mostly have to to identify people which do something on platforms and with their crypto assets both in Switzerland and on Thea okay so most problematic are in general and this has been in under major discussion in Switzerland and also in EU uh staking those U liquidity pools which could be also um seen as as staking uh

those liquidity pools um yield farming um investment Dows are also really problem atic so let's just dive into the S part of it and then I'll continue with the EU board uh thank you very much um Yanina so maybe I just give a very uh brief outline of crypto the crypto regulatory landscape in Switzerland so as you all may know Switzerland has been one of the early adopters when it comes to blockchain regulation means that the um Swiss regulator the Swiss Financial Market um supervisory Authority finma has been rather open to

um crypto projects and also wanted to establish regulatory um Clarity um in this respect so that's why we had already in February 2018 the so-called uh I guidelines the Ico guidelines was um there is a paper where the uh where finma says uh listen we assume um this to be um um the general rules applicable when it comes to crypto related projects only for our own um Authority for finma there were like the the like the the applicable principles but also the in particular the token categories this is very

important when it comes to any kind of of of of project it's always um either a a payment token a asset token which is deemed a security or an utility token um finma has their an approach where it says um it can be one of these categories but it also can be a hybrid token and most of the tokens have certain functionalities of these different categories of tokens which leads then to the applicability of a different set of rules for which applies to each of these token categories um they also outlined uh the amla uh duties which is mostly when um a

payment token is involved or a token has kind of a payment function um we'll dig into it in on the on the next slide no no but wait maybe just here just the the the fintech license was another Milestone where um uh finma or or uh where there was a the direct the the legislator really established a new license particularly for fintech companies I think it was also one of the first worldwide um uh uh uh known specific categories from a financial Market out uh regulation for for uh fintech uh particularly designed for fintech companies although it's not yet widely used I think we have

currently uh five five companies following under this um fintech license and the sandbo exemption um the sandbo exemption is kind of a a um um a mean to collect funds um uh without triggering a banking license for crypto related projects um no no just the last then the I think the biggest milestone in all these was then the the the so-called DLT act distributed ler act um it's it's actually no act it's it's a framework regulation where the Swiss uh legislator um um amended like Switzerland had a different approach for instance to

lonstein in lonstein they implemented the first worldwide um um um token regulation um uh with with private law and also Public Law uh Provisions where they said yeah this is token law this is a new set of law that's a new category of law Switzerland however decided on a completely different approach and said we don't need this we have a very solid uh legal background we just needs we we we we make a gap analysis and decide on which specific laws need to be um adopted to to uh uh uh to find legal Clarity with respect to

certain new issues raised by uh blockchain technology and that's why they amended 10 existing uh Federal um laws and um I think the most important part is um we have ler based Securities meaning a security can be a security of a share of a fund it used to be on a paper so I hand it over to you you're now the owner and then um it was evolved over time um there were uh Central depositories who made the change of the of of the shares and now Switzerland Prov provides legal security that the ch of ownership can also be done on leer based Securities which could have been assumed somehow but they

uh said also regulatory Clarity which need which what what what needs to be done uh or what needs to be met towards the ler based uh uh um um system used to provide sufficient security to be um officially the the the um registry of the of the shares bonds or whatsoever any kind of claim you can have so that's the first point the Leer based Securities they also implemented the DT trading facility um that's a new license category it's not uh it's maybe you know like an exchange an exchange in Switzerland we have only a sirc Al six and we have um BWI which is the very very very smaller brother SLS sister of

of six with for Forme companies who wants to get funds and then you have um um Trading facilities um uh uh OTC uh uh uh um um um trading facilities and this is a specific license category which the swits regulator implemented only for um DLT Securities bless you which is not yet uh um widely used neither I think there is maybe one or two not or not sure whether there's yet one but it's not widely uh used yet and which is very important when it comes to def5 Switzerland implemented regulatory Clarity with respect to the segregation of crypto assets with depository because

the segregation of crypto assets if I give my 10 Franks to Yanina um the legal law assumes that she commingled the assets and she's now the owner I have only a claim against her and if I give her my cryptocurrencies then maybe have a right of segregation in case Janina goes bankrupt so this is um the the the the the um yeah the ground of this and maybe now we can go to the next one yeah yeah exactly so these are the Ico guidelines an utility token um uh it's really easy it just provides an utility um a a pure governance token can be an utility a

pure utility token as I mentioned at the very beginning um tokens are usually classified as hybrid tokens meaning they they meet um more than one of these categories with the consequence that more of one of these um uh rules which are triggered by the token classification of one of these categories is applicable so security um it has the same um for if it's deemed to security if I have a claim against somebody then there is actually no new law in Switzerland applicable because the Swiss the existing laws applying to Securities is then applicable the um fin frog Fina and uh Fina these are the English

abbreviations for this um um uh uh laws and the payment token a payment token um the Swiss regulator said that Bitcoin and ethereum are both payment tokens although from a technical perspective eum does in my view not only have um a payment function but they deem um uh uh the native token is as a u a payment token yeah so at the very beginning maybe I want to interact with a little a little bit more I was uh I do not want to hold a monologue maybe um give me

examples or does somebody of you has already made uh some experience with um with any kind of of of defi um protocols had do you want to yeah all of you yes um so but but what what what what do you do with the to so you give it to a liquidity pool or do you do

yeah it's a DA yeah for if you have a governance token then um if you give for instance in a in a in a liquidity uh protocol will get in it later you will get um you give your um tokens which you have to the um to the protocol and you receive in return so-called Vault tokens which give you also the right to vote um on the governance of the specific protocol but also gives you a a part of the a proceed which they gain in a predefined uh uh um um way and um so this what you then do is just an utility you can you can vote

there on on on this Dow the Dow is kind of the the legal um founding of of of of most um defi protocols because you need to have somebody uh running the entire system usually you have a centralized party in defi protocols you usually don't have decentralized uh but a decentralized um organization of those but we but we just Mo most of the classifications that I see are investment dos Community dos service dos right so if if this is a utility token for governance most likely

it is a utility this is a short answer yeah this is what I said at the very beginning that most tokens are classified not in one category um so I was talking uh um uh with the former Soul legal council at Bitcoin Swiss uh of the a of the Year 1718 he did a lot of token classification back then when this Ico guidelines were the sole ones and most tokens do have a utility but he hasn't seen yet a pure utility token so

and he classified a lot of them and most of the crypto Geeks that just come and say yeah yeah you know this is an utility token but you need say yeah it is an utility token but it has also maybe other functions as you now just described and if you gain if you get um a a return dividend then it's by law defined as a security token and you need to meet all the normal normal uh um um regulatory requirements which is actually the exact same uh uh um um system which is applicable in Switzerland and in the EA with Mika Mika only regulates non security tokens because for the security tokens they have already with miit a

current very stable uh applicable legal framework just just just for clarification I mean this is a difficult concept for Sunday morning but um everything with is somehow has a return not in utility tokens but Fiat or crypto um can be classified as security and the consequences are you you have to follow the rules which normal security issues follow um re own issuance is not really LIC licensing but rather registration of a prospectus if you target retail investors normally a lot of projects in a private placement they either use uh um agreement for future tokens and they

also use the exemptions that Target mostly qualified investors minimum 100K denomination a minimum 100K threshold up to to 8 million in Switzerland crowdfunding exemption up to um I don't know from 1 to 8 million in different EA countries this is a practical approach to it so that's exactly the prospectus the prospectus requirement is one of the key things uh which you need to meet if it's a security token and if it's not a security token you need to make a so-called private placement memorandum which is I just explain it as a light version of a prospectus you just need for investor prector Pro protection reason make a huge disclaimer of a

couple of pages and outline the project in as much detail as possible so this is um a very burdensome uh barrier for for the issuance of of of tokens with the security component May into the staking sag in Switzerland because it is it is really like a sag it was it started last enough do I need no I think I can manage Michael do you hear me okay very good that's good this this has been really a like I really I really watched it with with with with popcorn like every month it started last Autumn oh

sorry I've already been spoiling the story give the word to you because this has really um real Saga of how the regul wanted to St proportionally what the community needs to to reach a great result for all of us yeah use the microphone just in case your is not okay exactly exactly but the floor is yours okay all right yeah um as mentioned before we had this regulatory uh uh Clarity implemented by the so-called DLT act which also implemented um a couple of um like they amended existing laws and uh I think the two most important with

respect to segregation of crypto assets there are in the uh bankruptcy law and in the banking law yeah so this is now the solution which was um issued by if you just Google finma and staking the first Google result will be um finma guideline on staking and this is maybe on page I don't know four or five and but it was quite quite road to get there so um as said with the implementation of the um um DLT act they provided legal certainty with respect to when um um um um for instance if I give uh uh if I have or like this is Al

always applicable for custodial staking meaning you stake via uh Bitcoin Swiss via bit Ponda via any kind of custodian then it's the question when in what in case uh the the the custodian goes bankrupt when the assets will be segregated um or do I only have a claim against the um against the custodian in case of bankruptcy towards the bankrupt estate so um if you have if the custodian he has individual custody meaning segregated on chain and then of course uh you have uh um you're still the owner of these

Assets in the in the in the moment of bankruptcy if it's a collective custody with clear customer shares they call it they say uh yes they still have a a a segregation so maybe I I've been working with with with SEO Al newly Amino and and with Signum and uh I can tell you or like how how this is done usually is you just you you you pull the assets uh basically on on on on a on on on on on the wallet and you have a internal lock file which assets are whom like Yanina has maybe 1.5 Bitcoin I have 1.3 Bitcoin and then so forth and this is in the internal banking system or in the

internal system however you want to call it you don't need a banking license to do um uh to provide staking services in Switzerland then this is segregable in the in the moment in the case of bankruptcy of the custodian y next so there is um exactly a very similar um regulation for uh banking for financial institutions and there that comes the fintech license into play um if you're a licensed ins or um if your licensed Institution

you have we in case you do not have clear customer shares if you do not have this internal lock file then as said then you have you commingle the assets with your own and then it's deemed to be a deposit which triggers a banking license which is uh yeah quite expensive but anyways there I think this is not really important because there are very few Banks providing staking services is it's mostly anyways um uh delegated staking so these these custodians do not provide the note themselves for the staking services that just forward the assets

towards uh a staking service provider and then you enter into a staking agreement where all the risks and so forth are outlined and the assets are transferred actually transferred to the node yeah analize yeah and maybe just accounting law uh treatment which has also to do with the segregation of assets so um you need to hold the like it has a if you do if you do hold the assets on the balance sheet this might have quite severe consequences and um I said if you hold if you hold uh if

you have a a custodian this internal lock file where it just explicitly mentioned at what at any time what kind of assets a specific client holds they're segregable and you do not need to hold them on balance sheet which is quite important which would have had quite severe um um consequences for for all big Swiss players maybe um the reason why this was so critically discussed is the um having like the the the law provides for the for the requirement to that the assets are available at all times and what means at all times if you

have unlocking period of a certain days which you usually have with staking protocols then the the FMA said yeah yeah but you don't have it available at all times you need to wait on in a pre predefined period but then um the the yes Swiss blockchain Federation and all um um Swiss crypto valy and and so forth they all said yeah that's true but in this very moment where you um unblock you you still have the exact same technical um uh uh uh it's technically it's it's it's already no it's technically not yet on blocked but

you will get the funds within predefined period of time so it is available although not immediately and um then the the the the FMA a FMA the regulator made a new turn and exactly established this um um uh guideline last December so this was quite un certain last year and would have led to quite severe consequences for Swiss crypto um custodians yeah yeah legal consequences that's fine no no I think if do you have any kind of questions yes

mhm with how much uhuh v um no you do not charge vat you just need to declare it from a tax perspective as uh uh um gains from Capital which on the Swiss law if you're a profession not a professional investor if your private investor is actually a taxfree and there is no vat applicable to to to gains from Capital so there is no V according to Swiss law and there is um it's it's actually tax exempt if you're uh uh deemed a private investor um if you

having your own investment strategy you're invest you're you're spending maybe 4 to8 hours for investing each week then you might be deemed a professional investor this is not a clear line and then you would need to uh uh pay income tax on the on the revenues in particular on the staking rewards in this case yes of course yeah no no they they they're

not taking um they're taking a a commission on it yes which is mostly in a part I would say up to 10 15% of the staking of the staking rewards it's the cut that the um uh uh these intermediaries let's call them intermediaries blockchain intermediaries they they use themselves as commission to to provide but you you as you know for for ethereum saking you need 32 uh uh e and or specific multiplied Factor thereof and exactly this amount so um it's it's better to pull to pull the assets and also to yeah so

M who's the owner yes um and no maybe if you're giving ease to bitcoin Swiss and Bitcoin is Bitcoin Swiss is giving it to the node which is provided which is the the validator node on on on a on a proof of stake blockchain then the funds are actually with Bitcoin Swiss you're still owner but they're blocked but the ownership remains with you the ownership remains with you but the risk of being slashed slashed is when you get the when the validator node does not uh uh uh uh uh um on didn't do

the right thing on the blockchain then your funds are are gone if they do the right thing on the blockchain and the validation process the consensus mechanism then you get rewards so you you bear all that risk the the tokens are factually actually with Bitcoin swiss but you bear the risk of the which which is actually uh by the validator notes Does this answer more or less no no uh not the ownership Only The

Possession there's a difference between ownership and possession if I give um as said at the very beginning this is a legal fiction if I give 10 bucks here from my M from my wallet 50 I give it to Yanina if she takes it it's a legal fiction that she's the owner of it she's possessing it currently and she's the owner of it with cryptocurrencies you have another legal fiction as I tried to adline before if I give her crypto assets and it's still segregable if it's even if it's on her in her wallet but she has a internal log file where it says Rafel gave me on what is 7th fourth at 12 um

04 um 0. uh3 Bitcoin then it's still second segregable and that's why I'm still the owner of it I do not have a claim against her if in case she gets bankrupts I just say I go and say Hey listen this 0 three Bitcoin on this wallet is mine I sent it then and the liquidation the Liquidator would give them directly out of uh back to me so that's like you I will stay the owner thereof I'm not the owner of a revenue there I have a claim there I have a claim because um uh uh uh it's uncertain and only in the event that the um custodian gets the revenues in this

moment this triggers a claim from me against the the the the custodian this is usually contractually also agreed uh but this is how they because this is how it how it is usually done yeah not that's a very good question um does it

have a regulatory implication um if they whe if they burn or they just yeah yeah of course I do think from a regulatory perspective it would should have it should be treated the same it has more an economical um uh uh uh consideration behind that exactly what you said before that you um raise the amount of tokens which have been issued and by this gaining more I don't know it's not market value but uh um and as always two two lawyers have different opinions I have a different opinion on that um it depends a lot also on illegal

structuring and how The Regulators would see it the economic sense may be the same but sometimes the legal structuring also changes the the regulatory qualification if they do not promise that let's say pay back in case of burn because if you promise it you're very close to banking license and I think there was all of the icos this was envan case I think the most severe one was the envan case when they promised the buyb then it's very close to banking license but if they do not promise it by do it fact this is a little bit in the gray area this is not so clear but if they would would have promised directly dividends this is definitely security or or even Collective

investment scheme but she in a collective investment scheme unit in a collective scheme it's also security yeah yeah I think now after uh uh taking this into account like a uh uh uh you said the stable coin uh die or uh which yeah yeah yeah I think if they if they would hold it there it's a payment token most likely although it's a a smart contract payment token not fully backed by um physical um funds it's a payment token and purely payment token would just trigger AML duties and no uh brokerage license if you would have

exactly the same with a a a a security token then it would definitely be a brokerage license which would then be needed by the by from their perspective um um as the provider yeah yeah definitely not no no no um we will'll get to it like there the legal uh uh like this is all for centralized um institutions and there here we have a decentralized institution so so to become for instance let us because I think we're running a little bit Yeah I will I I I'll maybe just liquidity pool so what's really important for you

to know is maybe um this entire Financial Market regulation always assumes that you have a legal person in a specific country a centralized person a natural person like me and you or a legal entity which then needs to be domiciled in Switzerland and get all these licenses in case you have a decentralized organization behind the decentral decentralized protocol there is no actual person who should be in charge of the of the license do do you know what I mean like that's a little bit like who who against who should finma start an enforcement proceeding if you have maybe only a a a

a a a a foundation in Switzerland which provides technical um um um services for um only Technical Services for a a protocol which is decentralized on specific nodes and and and the nodes themselves they vote on the governance so that this is a little bit uh uh uh the gap between how it works in the in the on the blockchain versus how uh how how the regulator stipulate or the the legislator stipulates that it's always one person in a specific country providing a specific service if this answer your questions to a certain extent um liquidity I think do you want I think

mik is not so what do you want to know I would just I would just to add my u two sounds on on MAA regulation which regulates mainly the the stable coins e-money tokens backed by um Fiat currencies or set of them um asset reference tokens most of the stable coins will qualify I either as e-money tokens or as asset reference tokens um and Mika is already there from from this summer and then from the end of the year also for so- called CPS crypto Asset Services providers and this is mainly for the centralized Services providers um they are discussing right now at the EU level also the regulation for defi it is a lot under discussion

especially staking under MAA staking is not really regulated but you always have to keep in mind law is always behind the economic and technological development we're just try to to catch up and sometimes the regulators and the lawyers are more or less successful than we adopt a proportionate regulation which forers The Innovation and at the same time provides the stability of the market somehow but sometimes we're not really fortunate with it approach The Regulators are not really for fortunate and also there is a lot under discussion how native staking would be regulated that was done with with protocols in all of the yield farming will be regulated we will see I think by the end of the year uh what will be the approach of um um EU

Regulators um this set about taking yeah yes it will it will be lonstein is EA European economic area uh which is the extended EU and we have to implement technically the EU regulations into national law but the Lenin blockchain act defg has been already adopted at least partially to towards MAA which means we are supposed to have a smoother transition period than other countries which have not adopted also National legislations towards it um so in general staking Anika not really regulated a part of staking of asset reference tokens emis it is directly prohibited to

provide interest on that otherwise it is just not regul it it is in a gray area and we'll see by the end of the year how the regulation would would look like for staking um and another feature we wanted to discuss with you is are the liquidity pools the yield farming um you deal with it uh you also could you could you describe how it looks like Tech from technical perspective yield farming what you do how you how you do it technically yeah sure sure go ahead B cont

to that's a very good description why why do you why why would you use a liquidity pool just what is the economic incentive behind it

because Curr you always find yes that that's what I have seen a lot in in cases of our clients that they use it for utility or let's say non-security tokens that use liquidity pools as a way of price Discovery to boost the the market price of the token and then to be able to offer it to um with with more attractive conditions to to the buyers

to the purchasers um would you dive in into the regulatory considerations of those liquidity pools always

what is the regul perspective yeah the regulat regulatory perspective is um slightly different like um um I think the most important part in this respect is is the collective investment schemes or it is a fund when it is what is a fund it's the same actually more or less in in Europe under under the fmd and and the uh uh um and the Tesa the the Swiss Collective investment schemes act so always if you give money if you pull assets together and you have a common investment strategy and somebody managed these assets which could be also most likely the smart contract then it's deemed a

collective investment scheme SL a fund so um tokens Can of course be part Al can be the can Parts can be parts of collective investment schemes because I said um even if you have an utility token a pure utility token you have a certain right attached there to which might for somebody have a certain value with payment tokens and security tokens it's clear that they have a value so if you pull them together this is a pooling of assets which is the same as pooling as so USD Swiss Franks Euros whatever and um usually you deposit assets with the custodian in for a

collective investment scheme so the custodian of a collective investment scheme does nothing else than just execute the orders from the fund manager so can a smart contract super substitute a custodian and I do think yes you know because at the end of the day just uh the smart contracts it substitutes not only the uh custodian it also um the protocol substitutes also the fund manager as said before when um uh the the inter ratio between or like the actions they are already already predefined of course you do not have the possibility you cannot Co you cannot program the smart contract in a way to

cover all eventualities which you actually should be perfect but um in my view this is already sufficient or could be sufficient to meet um um the the to have the same decisions as a fund manager at the end so when it comes to yield forming um I don't know um uh wal contract is like you give this amount of XYZ tokens and you receive in return another token which uh represents a claim towards the proceed the proceeds of this liquidity of of of this pool which uh of tokens where you provided it to of course also

gains and on top you might receive uh another token um or which is which might then also be implemented into this token depending on the specific setup um the strategy contract is kind of the the the smart contract predefined investment strategy when to invest into what so I think this is um in My View From a pure legal perspective could already been uh triggering licenses as a license as a collective investment scheme which is quite a severe has quite severe consequences yeah there just maybe one

back yeah one back yeah liquidity pool yeah so I tried to explain it at the very the before I think uh what's very important is that this loss only apply if a specific person in a specific jurisdiction wants to implement it the thing be behind the the the decentralized finance is that it's accessible that it's decentralized and that it's uh uh um um um transparent SL secure uh uh um so what the the real difference between um uh uh all these uh uh uh financial markets law which we try to outline a little bit and the real world in in defi protocols is that you do not have a

person reliable for a specific protocol at the end of the day so you cannot ask somebody to say listen you need to adher to this and that rule because behind all these uh protocols is usually a decentralized organization and um if it's properly set up then you do not have somebody um able to to to get any kind of license therefore so this is why this works also in practic in practice without meeting all these license requirements which we outlined before and if they have a license maybe in a

specific country but when it comes to crossborder applicable regulations you need to meet investor protection is always for a spec specific area of law for uh for a specific area for instance for the EA you have the EA guidelines either the directly applicable or for Switzerland you have swiss law um if an organization has some part of company somewhere in the in the Caribbean and they provide services of Switzerland also Swiss law would applicable be applicable but but it cannot be enforced against somebody in in a Caribbean country they would need to file a um a support claim towards that

Authority and this and that so this is quite rather combersome also in the today's globalized world so you see um the reality is here and the legal uh uh uh uh setup is still uh uh behind very much behind um yeah that's a flip side maybe um if there's a fraud uh FTX uh just wasn't too wasn't too long ago of course there were just U um um um this was a a pony scheme at the end of the day and um uh how this worked of course they have like

in this specific case they had also uh specific approval from a Caribbean let's call it Banana Republic and uh um and and and at the end of the day uh uh in in this intransparent structure you could not know what would actually even the own accountants of FTX didn't know because it was decided on a very high level and this was all fictive entries in in these books so you see if you're not regulated the flip side if you're part of a fraud you will you have just no way to get this kind of information or you're I don't know really well networked and you get all this uh uh top top secret information which is as a

normal investor rather unlikely yeah that's a very good flip side comment I think any wait for this no this is um this is also the EU perspective just just as as um Rafael said in most of the countries liquidity pools are quite close to the collective investment scheme though again two lawers might have a different op in EU blockchain Observatory we see that um um liquidity pools do not have a predefined investment strategy this is subject to be discussed this is subject to interpretation by lawyers Regulators are also lawyers just just in um um regulating organizations

um so it it is still in the gray area and it is discussed by by the EU Regulators whether and how this these would be regulated that's why the practical approach is that some Dows are run without any um legal structure both running dubs with liquidity pools and those also running investment Dows because investment Dows are in most of the cases even closer to Collective investment scheme become uh than than the liquidity pools again all in in gray area I guess we discuss the Stak on the mik I'm checking it right now

yeah yeah because yeah we discussed briefly already staking and maik so let's just um move on with your question may answer yeah um I I did a full presentation on it and we also working on an article for third countries access under ma the thing is with is not part of the EU it has bilateral agreements with with EU which most of the people are not really aware of and it doesn't have unrestricted access to European markets it has access to European market under exemptions under miid for example which regulates mainly

Securities and Ana there are even less almost no exemptions for Third Country providers which means from economic perspective Switzerland has a a great opportunity window and right now it has to redefine its USPS um to be still attractive for a lot of projects because once you would like to provide um to be a CP crypto asset service provider like depository exchange transmission Asset Management etc etc to people in EU you need to have a presence in EU or EA and that's why some of the um providers which has been there and which would like to be

regulated in e you share let's say their stuff in both switzland and lonstein for example um yeah I think uh what's very important is like the reverse solicitation approach which is actually by all banking by all kind of Financial in uh institutions already applied and now um there was ESO guideline on what means reverse solicitation now with the implementation of mik mik um director ESO made gave more clearance uh in the in the mik for the first time in in really in in a directive mentioned what is exactly a reverse solicitation and it's very really narrow reverse solicitation if if

a EU based client comes to a swiss-based um crypto asset service provider on his own and exclusive initiative there is no license requirement however if you want as a Swiss participant actively solicit actively Market actively what is active you like like meaning making a post on LinkedIn which can be reposted by everyone is is is can be already considered by as as a active solicitation so it's a rather Thin Line it's a rather unclear line uh with the consequence that um you need to provide a specific uh uh uh um if you want to solicit clients in the EA which is the EU plus lonstein Norway and Iceland you

need to have a physical presence in one of those countries where uh depending on each regulator predefined substance and this is where lonstein comes into play because Lenin is rather smooth the regulator is rather easygoing and uh uh rather collaborative and you can do split office with Switzerland which you cannot do for instance with buffin which you cannot do with FMA in France which you cannot do with most of other Regulators so this is why this setup Switzerland and small Switzerland lonstein is a really good combination and and that there we still have there quite some good flexibility when it comes into a crypto project we have also very good uh um connection there with

the regulator and are um often in contact with them