Thread by @propelforward

There has been lots of talk about #uniswap front end interfaces blacklisting #tokens that might be #securities. This is not an attack on #DeFi or regulation of #DeFi specifically, but instead a logical example of how existing regulation applies to legally addressable entities /1

including those that facilitate the use of #decentralized systems- in this case, legally addressable interface providers. And this isn’t new. Quietly, many front end providers are also engaged in #sanctions compliance. While laws obviously apply to legally addressable actors, /2

this does not mean that regulation has applied or will be applied directly to protocol code, at least not yet. This is b/c code itself is not legally addressable. It has its own rule-set governing its environment, & law cannot change code, although law can act on people /3

who use, build, & support code. In my recent paper w/ @Prof_CarlaReyes & @Andrea_Tosato, we highlighted the key distinction between code-given abilities and legally addressable rights & powers: papers.ssrn.com/sol3/papers.cf… That distinction is in play once again. /4

The key idea is that limits in code may limit the ability for legal power to affect code, & thus to restrain user abilities within the technical environment created by that code. In turn, law may impact the usability of assets created by code in contexts outside of the /5

technical environment created by the code. So while one front end provider limiting access to some assets available by the underlying protocol is interesting, it doesn't signal "new" regulation of #DeFi per se. Legal power is still limited in the context of some systems. /6

For example, a court order requiring the “#bitcoin protocol” to not confirm a transaction would likely fail. The simple reason is that there is no legally cognizable actor in the US who can effectuate the order. Why? From one of my unpublished manuscripts: /7

However, external legal forces can impact the usability of a #bitcoin created by the bitcoin protocol in contexts outside of the bitcoin’s code mediated technical environment. /8

The law can affect legally addressable actors when they interact with assets created by code. But, absent globally consistent, enforced, regulation, the distributed, cross -jurisdictional & voluntary nature of blockchain systems will frustrate efforts by law to affect system /9

functionality. In the above example, the Court order if followed may functionally cause a "US fork" of #bitcoin. Because of the characteristics of public network #blockchain systems, the law cannot re-write code, or force the adoption of code, or force re-written code /10

to be adopted globally. Absent a global agreement by all governments & global enforcement of court orders, the result is that it is likely that legal power to alter distributed online protocols will be limited. /11

Circling back to #Uniswap. Any US facing legally addressable entity is charged with compliance with the law. So, seeing a US-based company take steps to follow the law is neither a surprise nor cause for alarm. It does, however underscore the importance of real #decentralization.