Thread by @fintechjunkie

I encountered a new “ah ha moment” in Week 5 of my Red Pill journey.

Once I internalized it I couldn’t help but look at everything through this new lens. Short🧵👇

My “ah ha moment” happened in the middle of a conversation with @amiasmg about the legality of various things I was seeing in the web3 space. He has a deep regulatory background which makes him a good sounding board. One of his responses opened my eyes in a big way.

To paraphrase, he said: “You’re asking good questions but you have to recognize that what we’re seeing in the crypto space is mass civil disobedience.”

🤯🤯🤯💥💥💥🤯🤯🤯

What a fantastic concept. It helps explain the wave of innovation taking place in the web3 world!

Civil disobedience is the refusal to obey the rules of a government without relying on active measures of opposition. Civil disobedience is a thoughtful violation of specific laws rather than a rejection of the system as a whole.

Mass civil disobedience assumes that if enough weight shows up to support a new idea it will force change. The system will have to adapt because enforcing existing rules on the masses will prove to be impossible.

This attitude is fueling a dizzying amount of experimentation in the web3 world.

Most web3 innovators are trying to will into existence a new world. To them, web2 regulations are a big piece of the problem, so why follow them?

This attitude is the rocket fuel for innovative ideas and disruptive business models.

But it also comes with problematic downstream second order effects including the uncertainty around consumer protections and the lack of ability to levy enforcement actions against bad actors.

In the US, when the Federal Trade Commission (FTC) finds a case of fraud perpetrated on consumers, the agency files actions in federal court for an immediate order to stop the scam, freeze assets of known bad actors, and ultimately attempts to get compensation for victims.

Federal law says that advertising/claims must be truthful, not misleading, and, when appropriate, backed by evidence. The FTC enforces truth-in-advertising laws and it applies the same standards no matter where an ad appears.

In the case of regulated activities like Banking, binders full of policies exist to make sure protections are in place.

Reg B fights discrimination. UDAAP prevents deceptive policies. The MLA protects active duty members of the military. The list of protections is long!

So imagine the difference between a “web2” and “web3” viewpoint when studying innovation taking place in the world of NFTs, DAOs and Dapps. This is the “ah ha moment” that helped my first-principles-oriented-mind make sense of it all.

For instance, I see many NFT projects offering cash prizes that are awarded randomly or based on randomly generated NFT traits post-mint.

Guess what? In web2 world, there’s zero debate that this is an unregulated lottery and 100% illegal.

Lotteries, unless state-run, are illegal in every state and could subject a business owner to civil and criminal penalties and fines. The FTC receives about 100K complaints a year about prizes, sweepstakes, lotteries making this a “top 5 complaint” category.

I own a NFT in a project that’s awarded the holders of 65 NFTs with monthly payouts “4ever”!

Guess what? That’s an annuity. Annuities are regulated and protected by nonprofit guaranty organizations at the state level. I’m guessing this one hasn’t run the US regulatory gauntlet.

What about DAOs? How a DAO operates will dictate the rules it has to follow. Web3 doesn’t exempt a DAO from employment law.

Performing tasks and getting rewarded in tokens could trigger a classic employment relationship. Taxes? IP? Equal Employment Opportunities Law?

Imagine if the Fyre Festival had been structured like a DAO with members from all over the globe and tokenized with NFTs in a web3 world. I’ve seen a few projects that have this type of “too good to be true” look and feel. It’s happening right now under our noses.

It was a disaster in web2, but at least McFarland was held accountable for the mess he created. McFarland pleaded guilty to 2 counts of wire fraud in federal court and admitted to using fake documents to attract investors to put more than $26 million into his company.

Mass Civil Disobedience is a heck of a powerful concept and it might end up winning in the end.

I'm guessing there will be a lot of collateral damage along the way, but what believers in web3’s promise care about is that regulation isn’t getting in the way of experimentation.

Addendum: This thread has started to pick up a negative vibe and for very good reasons.

To be clear, I'm not endorsing what I'm seeing (i.e. - I believe in following Regs/Laws) but it's striking how the analogy seems to explain a lot.

We have a movement underway full of passionate individuals who believe that they're fighting for better employment (DAOs) and a fairer distribution of profit (decentralization). In this sense, their acts can be seen as acts of Civil Disobedience.

Could it accelerate change? Maybe.

Could people get hurt along the way? Probably.

Will some people get in trouble? Most likely.

But regardless of the outcome, web3 is a movement as much as it is a conglomeration of projects. And it's a movement picking up steam....