_gabrielShapir0 Profile picture
Sep 24 22 tweets 4 min read
crypto law/policy has become very confused, for the following reasons

this is a potentially cancellable opinion, but I believe it really explains "how we got here"--i.e., to the very strange and confusing legal/policy position we are in as an industry
operationally, blockchains are controlled by miners/validators, who perform the service of bundling txs into blocks and trying to get those blocks stored on the chain--as well as some ancillary services and activities
the discretion of miners/validators in how they perform this service is highly constrained, because the users they work for expect them to follow the rules of very specific software--and if they don't, the users will know, there is no hiding it
the miners/validators still do have some discretion though--they can refuse service to some users (subject to sybil attacks) or more plausibly refuse service to some transactions--like low-fee ones--or can provide expedited service to some users/transactions
fundamentally, they are the only ones positioned to censor or impose conditions on txs, and because this is the case the software that constrains them has to be ingeniously designed to prevent them abusing this power
but, for example, if anyone would be positioned to do "KYC" (reminder-it means know your *customer*), it would be miners/validators

ofc, if they did that in a damaging/consistent way, the users would revolt and fork off to a new network that more successfully constrains them
now then, here is where it gets interesting--because we have various law/policy people involved

the ones on "our side" reason--validation/mining is really important, I will hide how important it is and try to get regulators to accept censorship at other layers
the ones "against us" reason--this activity looks a lot like the kinds of activity laws require censorship in, we must maintain technology neutrality and force censorship here (KYC, some people/countries banned from transacting, only some kinds of txs allowed, etc.)
when these two constituencies talking to each other--one which is not prepared to speak frankly about who is in a position to censor and why it would be dumb to make them do that--the other demanding censorship, chaos and confusion bloom
the result is that the pro-censorship constituency is focused on trying to argue that software developers--who are much much less like service providers than validators/miners are--should be regulated like financial intermediaries
however, software developers *cannot* comply with financial intermediary rules (b/c they are not the ones running the software, the validators/miners are),
therefore, we get the next position from the pro-censorship crowd--in effect, certain forms of software deployment/licensing arrangements are illegal

this is essentially what the CFTC implicitly (perhaps unwittingly) told us their view of the law is on Thursday
What we all have to make everyone realize is that validators/miners run the software, not software developers (even if they retain some tokens letting them adjust limited parameters). The devs *can't* do KYC or censor--only miners/validators *could* do that.
Now, I don't want regulators attacking miners/validators either. But luckily, once you clarify who is in the position to do censorship, it is much easier to advance the right policy arguments--that they are like ISPs/infra providers,
that the benefits of that infra being open outweigh the cons, that regulation would be ineffective as there is an inherent flywheel/incentive system at play that will make regulation similar to playing whack-a-mole across the globe.
Until this conversation happens, the entire crypto law/policy debate will just involve everyone talking past each other.
The most anti-software-freedom, anti speech-freedom positions I have seen come from *within* the industry from people saying we should regulate websites which merely display block data and show a user how to construct JSON objects as if they are NASDAQ.
This is because they are being too smart for their own good, hiding the ball, & pointing regulators to the areas where our ecosystem is weakest (devs, FEs) instead of where it is strongest--like mining/validating, which is purpose-built to be censorship-resistant.
In the process, the industry lobbyists (other than perhaps @coincenter ) have lost their path--they are no longer fighting for core software freedoms, but are trying to throw some software freedom under the bus to save other forms of software freedom. That's how you lose it all.
PS--trying to regulate DeFi by regulating wallets, block explorers and JSON constructors is equivalent to trying to regulate the stock market by regulating the Wall Street Journal, Bloomberg Terminal and CNBC Squawk Box--it is anti-internet, anti-speech, and anti-software
PS cont'd: these are *not* "interfaces", they do not "provide access to" smart contracts or blockchains

they literally *just* provide information...plus, in the case of wallets, a broadcasting function so you can send a tx request to the relevant network
never before have supposed pro-software lobbyists argued that instructing people how to use software and enabling them to send a message to a computer network should make one a regulated financial intermediary--but this is what "crypto policy" people are promoting; it's bizarre

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More from @lex_node

Sep 8
the most frustrating thing about Gensler's speeches is that I agree with much of their surface level, but the SEC's longstanding refusal to customize the securities laws for crypto (as many of us pushed) make his words deeply disingenuous

it is a fantasy that small software teams with no revenue-generating business can afford to become full-blown exchange-act reporters--a regime costing millions per year
further, the majority of those costs arise from accounting formalities that make no sense as applied to a purported implied-by-law 'investment contract' that does not represent a claim on a company's assets
Read 14 tweets
Aug 13
U.S. validators (which includes very powerful Coinbase) are gonna push for protocol-level censorship

They can't self-help by merely avoiding facilitation of blocks containing U.S.-sanctioned txs, because under certain conditions they might be dramatically slashed from doing so.
This is a major can of worms. . .

I hope I'm wrong but it's the logical outcome, unless they can reach a major legal breakthrough that gives them a safe harbor (e.g., clarifying that merely signing a block with sanctioned tx does not violate OFAC).
thanks to @jon_charb @AFDudley0 and others for helping me think through this...
Read 4 tweets
Jul 29
before DeFi, the last serious attempt at creating a p2p financial market was with "p2p lending"

lenders and borrowers would connect on a web platform like Prosper--it was so disintermediated that some lenders even held due diligence calls with prospective borrowers
last year, the biggest p2p lending platform shut down the p2p lending business and essentially became a bank

the p2p lending market essentially is dead--what happened?
The SEC happened

In 2008, the SEC issued a C&D to the then biggest platform, Prosper, arguing that loans between two *peers* were securities offered by *Prosper* merely because they were arranged on Prosper's website & Prosper administered debt collection etc. Image
Read 12 tweets
Jul 18
I personally think that in web3, there should be no pure investors

every project should be a joint venture

"investors" should sign up to their value-add commitments as contractual covenants and have true vesting (not mere lockup), including governance participation commitments
this way, there are no misunderstandings and your project ia decentralized from day 1

also, all value should flow to the token..no dual equity/token bullshit, which always disadvantages retail
tokens should be non-transferable for way longer

tokens should be structured more like preferred stock with cumulative dividends so JV participants get their principal back + some multiple without needing transferability
Read 5 tweets
Jul 9
I will say it 10,000x :

governance tokens do not confer a right to control developers / a development team

they do not confer *any* powers or rights on the social layer, except at most 'by custom' (which is fragile)
if you want to govern a development team, buy capital stock in a technology company--not governance tokens
by contrast, with governance tokens, the only social-layer power or right is to take signaling votes & use the results to gain support for a fork of the underlying FOSS software among current validators or a new set of validators

Read 4 tweets

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