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The 'R' Word Web3 Degens Hate But Must Learn

The 'R' Word Web3 Degens Hate But Must Learn

<100 subscribers

<100 subscribers

This era of technological advancements can be likened to the ‘dot-com’ boom where there was a sweeping change in emerging technologies and policy and lawmakers just couldn’t understand or keep up. Fast forward to now, they still can’t keep up tbh 🙃– especially because in this society, information travels waaaaaay quicker thanks to social media. It also perhaps doesn’t help that web3 moves like Max Verstappen in a Red Bull car. 🏎️💨

As we saw with the FTX clusterfuck saga, it also doesn’t help that “crypto” and “web3” as terminologies have a PR problem. Fraud like that just created more distrust in the industry, and the damages to consumers and investors were so catastrophic that it caused a domino effect in the financial world as a whole. Many web3 users once bullish in the space left for good at the peak of the bear market as well.

So naturally, regulators want to jump on it quickly to make sure consumers and investors are protected. There’s mounting pressure as the impact of decentralisation, specifically DeFi, are disrupting the global financial markets so much it’s making governments kinda nervous and putting traditional banks constantly on their toes.

For a relatively, new and novel space that’s growing so fast, regulators from around the world obviously want to do the right thing and protect consumers. But it’s an intricate dance between wanting to protect, but also not going too overboard that they stifle innovation.

During the panel’s conversation, various topics were mentioned that I want to break down for you so:

1. We can learn the importance of regulations and policies in crypto and

2. Find out how we can help shape the direction and adoption of crypto for the better

Regardless of where you are in the world, what the SEC think about various projects, and how they’re treating crypto assets as securities or not is super important because the classification can be echoed by other jurisdictions. It also means that If we’re looking at this from a US angle with the SEC, if a crypto asset is eventually classified as a token, then web3 founders and users/participants need to follow US security laws and the various licensing regimes at a state and/or federal level. Although quite burdensome rules, it’s important to:

1. Know them so

2. You can abide by them and

3. Not go to jail fam

It’s not just the SEC that’s important here, of course. In the US, there are also state-by-state regulations and while Gary Gensler is a SIMP for the SEC instead of for the people, companies should also think about the implications of operating in certain states in the US e.g. what licenses they need there, etc. before immediately trying to have Top Boy-level beef with the SEC.

That goes for startups and businesses who are also outside of the US. You can’t just simply ignore the policies and laws of America because you’re not incorporated there. The real question is, as a business, how important is the US to your project and your product/service in terms of:

⚪ Are you marketing to US consumers?

⚪ Are you targeting US consumers in anyway?

⚪ Are you partnering with US brands?

It’s great to have high spirits and high convictions about a project. But there are rules and those rules are here for a reason. I know typically the ethos of web3 is to create our own socioeconomic paradigms while putting up our middle fingers to large corps and traditional institutions, but the reality is following the law is sexier because you definitely cannot pull off a prison uniform and those handcuffs are not from Van Cleef & Arpels so why tf would anyone want that around their wrists? Ew.

🟡 Traditionals securities are highly regulated.

🟡 Issuing securities is highly regulated.

🟡 Allowing people to transfer securities is highly regulated.

For example, you can’t purchase a traditional security without the risk disclosures that come with it.

Regulators want want to apply that for crypto as well and so it becomes a balance of protecting the consumer whilst avoiding stifling innovation. (We’ve heard those exact words get repeated time and time again innit. Like bruh, at this point make it the tag line for web3 😭!)Why this is such a huge balancing act issue is because of differences in approaches by different countries. For example, the UK has taxonomy frameworks that applies to crypto assets* but in the US, they have the Howey Test: 4 requirements that must be satisfied in order for a transaction to qualify as an investment contract.

But it creates confusion because that test comes from case law, and it’s hard to apply the test when it relates to complex crypto and web3 projects. There is a lack of certainty and ambiguity on what really falls within this broad definition of what a security could be. That’s a huge issue for projects because they can/might have launched thinking they’re not a security, only to find out the SEC thinks they are.

Crypto is seen as a high-risk, high-return asset and when you compare it to traditional securities, it’s definitely a lot more volatile– but adding the regulatory arbitrage + some unhinged degens to the mix and it’s pretty much Las Vegas on steroids, and on a blockchain. What happens in Vegas, stays in Vegas. What happens in Vegas is now available on a public ledger. #decentralisationbitches

So from a regulator’s perspective, they want to make sure they get this right. And it’s complicated— there are a lot of things to consider and many instruments at play.

Innovation is incredibly important to our socioeconomic well-being. The better products and services we have, the more we can optimise the way we live, work, and have fun.

In international law, extraterritoriality is the state of being exempted from the jurisdiction of local law.

This means, generally speaking, if you are outside of the UK offering services to UK individuals, normally you would fall outside of that regulation– you do not need to be registered with the FCA. But there are other types of regulations e.g. securities or financial services and financial promotion regimes (coming soon!) that are not part of that rule. This means even if a business is based outside of the UK but it’s performing activities regulated within the UK (there are different tests to determine that, ofc), then the business would still be subject to UK laws.

At this point, I think extraterrestrial laws will be easier to follow than this! 🛸✨👽🪐🛰️💫

The point of crypto and web3 is to allow a permissionless way to exchange value, peer-to-peer to anyone and from anyone in the world via blockchain technology without interferences from third-parties. So the inherent nature of crypto involves an international factor and a globally scaled ecosystem. We can’t avoid it so we might as well learn it.

This is particularly important as there are many crypto and web3 startups who think by incorporating in a much more crypto-friendly country, they can bypass their domestic laws.

There are other things to think about, too. For example:

• Does your marketing language target US consumers?

• Are you still offering products and services to the US…how integral are these relationships?

The idea to set up shop elsewhere is not as black and white as people think. It’s also setting a dangerous precedent of, “We’ll just forget about the US (for example) and move all the innovation and developments we’re working on somewhere else.”

Entrepreneurs emerging in that market would then move talent away from the country. But it would be foolish to ignore a country like the US when so much venture capital is pouring out of there!

Lots of things have been poppin’ since Rishi Sunak became the facecard for crypto in the UK. A16z setting up their first foreign office in London is bullish AF and reflects on the positive push for the UK to be a global crypto hub.

What does this mean for the UK market?

• It’s a positive move, showing UK regulators at quite a balanced light. It means overseas businesses are looking at UK regulations on crypto and they’re liking the approach we’re taking.

• Still think with the FSMA coming in the UK market might take a short-term hit…VCs and bigger companies might not be here as much but long-term it’s the right direction.

• FCA are really trying to have genuine engagements and meaningful discussions with others in the industry but businesses are underestimating just how much there is to do in defining what regulations are best

The market deserves to see better and progressing products, and consumers deserve to use the very best services and products too. It seems the way policymaking and reforms are happening in the UK to help advance the use case for crypto is showing huge signs of favourability.

Some dope developments happening include:

The FCA announced their 2023 priorities as ESG, crypto assets and AI.

The Law Commission of England and Wales have published recommendations for reform and development of the law relating to digital assets.

Some not-so-dope but necessary developments have been:

From 8 October 2023, marketing of crypto assets in the UK will be subject to a general restriction on financial promotions, breach of which is a criminal offence.

Hand in hand with this development, the UK Financial Conduct Authority (FCA) has unveiled new and near-final rules in Policy Statement 23/6 (PS23/6).

Across the board we are seeing a universal effort to get more laws in place to advance the industry, but we aren’t going to get to a position where we have one harmonised framework. Different jurisdictions are going to approach things differently and this is largely because of culture. Different countries hold different values and therefore will prioritise different principles e.g. America favours corporations, EU favours consumers.

The movements in the UK in comparison to other nations reflect that. For example, the application of the general restriction on financial promotions to crypto assets brought forward by the UK government under the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023, with goals to caveat consumers when it comes to crypto assets investing. Although, there’s anticipation that (FPO23) will impact crypto startups and smaller companies more in the short-term. Bigger companies and VCs are more likely to have the capital and resources to comply with it in the short term.

But lawyers and regulators think this is a necessary move towards the right direction in responsible crypto investing.

1. There are an amazing amount of resources out there that are free online, made by brilliant minds who have thought these things through. 🧠

2. Crypto Twitter space is great for hearing things about the industry, but there are numerous official resources from lawyers, regulators, and policymakers alike which outline and simplify a lot of these things to founders/business owners and individual investors— just search outside of the bubble you’re in. 🫧

3. Stress-test your business(s). If there are new pieces of legislations coming in, take the time to sit and read through them. (Because whilst lawyers think, “Oh this is going to be great!” they can actually fundamentally misunderstand how the technology works). 📖

If you’re interested in this space and actually want to shape the future of legislations in crypto, take time to read draft legislations and bills, or engage with lawyers you see on social media and send them messages on what you think would or wouldn’t accurately work in the technical and practical sense. It shouldn’t just be up to lawyers to figure things out because the work they produce may not accurately reflect the technology.

The next 12-18 months are going to be very pivotal. We’ve seen lots of incoming drafted legislations and reforms in the last year + new case laws in the US almost every month.

As those come into force, how we see them work in practice and the additional guidance alongside reports and advisory bodies will largely determine the trajectory of crypto towards the next bull run.

Keeping MiCA on both investors and founders’ radars is an extreme gigabrain idea because it’s currently being considered as the 💫 ‘golden standard’ 💫 of crypto regulations. But the challenge perhaps is MiCA seeks to create an entirely, new bespoke regime that applies across EU member states. Not an easy feat by any means! But if it works, then we’ll see how other global regulators will turn to look at MiCA for inspiration for their own nation’s framework.

And maybe then, the ‘R’ word in crypto wouldn’t be so hated.

*Bear in mind that these are a case-by-case scenario. There’s a difference between crypto assets that are used solely as digital collectives and crypto assets that present a utility.

This era of technological advancements can be likened to the ‘dot-com’ boom where there was a sweeping change in emerging technologies and policy and lawmakers just couldn’t understand or keep up. Fast forward to now, they still can’t keep up tbh 🙃– especially because in this society, information travels waaaaaay quicker thanks to social media. It also perhaps doesn’t help that web3 moves like Max Verstappen in a Red Bull car. 🏎️💨

As we saw with the FTX clusterfuck saga, it also doesn’t help that “crypto” and “web3” as terminologies have a PR problem. Fraud like that just created more distrust in the industry, and the damages to consumers and investors were so catastrophic that it caused a domino effect in the financial world as a whole. Many web3 users once bullish in the space left for good at the peak of the bear market as well.

So naturally, regulators want to jump on it quickly to make sure consumers and investors are protected. There’s mounting pressure as the impact of decentralisation, specifically DeFi, are disrupting the global financial markets so much it’s making governments kinda nervous and putting traditional banks constantly on their toes.

For a relatively, new and novel space that’s growing so fast, regulators from around the world obviously want to do the right thing and protect consumers. But it’s an intricate dance between wanting to protect, but also not going too overboard that they stifle innovation.

During the panel’s conversation, various topics were mentioned that I want to break down for you so:

1. We can learn the importance of regulations and policies in crypto and

2. Find out how we can help shape the direction and adoption of crypto for the better

Regardless of where you are in the world, what the SEC think about various projects, and how they’re treating crypto assets as securities or not is super important because the classification can be echoed by other jurisdictions. It also means that If we’re looking at this from a US angle with the SEC, if a crypto asset is eventually classified as a token, then web3 founders and users/participants need to follow US security laws and the various licensing regimes at a state and/or federal level. Although quite burdensome rules, it’s important to:

1. Know them so

2. You can abide by them and

3. Not go to jail fam

It’s not just the SEC that’s important here, of course. In the US, there are also state-by-state regulations and while Gary Gensler is a SIMP for the SEC instead of for the people, companies should also think about the implications of operating in certain states in the US e.g. what licenses they need there, etc. before immediately trying to have Top Boy-level beef with the SEC.

That goes for startups and businesses who are also outside of the US. You can’t just simply ignore the policies and laws of America because you’re not incorporated there. The real question is, as a business, how important is the US to your project and your product/service in terms of:

⚪ Are you marketing to US consumers?

⚪ Are you targeting US consumers in anyway?

⚪ Are you partnering with US brands?

It’s great to have high spirits and high convictions about a project. But there are rules and those rules are here for a reason. I know typically the ethos of web3 is to create our own socioeconomic paradigms while putting up our middle fingers to large corps and traditional institutions, but the reality is following the law is sexier because you definitely cannot pull off a prison uniform and those handcuffs are not from Van Cleef & Arpels so why tf would anyone want that around their wrists? Ew.

🟡 Traditionals securities are highly regulated.

🟡 Issuing securities is highly regulated.

🟡 Allowing people to transfer securities is highly regulated.

For example, you can’t purchase a traditional security without the risk disclosures that come with it.

Regulators want want to apply that for crypto as well and so it becomes a balance of protecting the consumer whilst avoiding stifling innovation. (We’ve heard those exact words get repeated time and time again innit. Like bruh, at this point make it the tag line for web3 😭!)Why this is such a huge balancing act issue is because of differences in approaches by different countries. For example, the UK has taxonomy frameworks that applies to crypto assets* but in the US, they have the Howey Test: 4 requirements that must be satisfied in order for a transaction to qualify as an investment contract.

But it creates confusion because that test comes from case law, and it’s hard to apply the test when it relates to complex crypto and web3 projects. There is a lack of certainty and ambiguity on what really falls within this broad definition of what a security could be. That’s a huge issue for projects because they can/might have launched thinking they’re not a security, only to find out the SEC thinks they are.

Crypto is seen as a high-risk, high-return asset and when you compare it to traditional securities, it’s definitely a lot more volatile– but adding the regulatory arbitrage + some unhinged degens to the mix and it’s pretty much Las Vegas on steroids, and on a blockchain. What happens in Vegas, stays in Vegas. What happens in Vegas is now available on a public ledger. #decentralisationbitches

So from a regulator’s perspective, they want to make sure they get this right. And it’s complicated— there are a lot of things to consider and many instruments at play.

Innovation is incredibly important to our socioeconomic well-being. The better products and services we have, the more we can optimise the way we live, work, and have fun.

In international law, extraterritoriality is the state of being exempted from the jurisdiction of local law.

This means, generally speaking, if you are outside of the UK offering services to UK individuals, normally you would fall outside of that regulation– you do not need to be registered with the FCA. But there are other types of regulations e.g. securities or financial services and financial promotion regimes (coming soon!) that are not part of that rule. This means even if a business is based outside of the UK but it’s performing activities regulated within the UK (there are different tests to determine that, ofc), then the business would still be subject to UK laws.

At this point, I think extraterrestrial laws will be easier to follow than this! 🛸✨👽🪐🛰️💫

The point of crypto and web3 is to allow a permissionless way to exchange value, peer-to-peer to anyone and from anyone in the world via blockchain technology without interferences from third-parties. So the inherent nature of crypto involves an international factor and a globally scaled ecosystem. We can’t avoid it so we might as well learn it.

This is particularly important as there are many crypto and web3 startups who think by incorporating in a much more crypto-friendly country, they can bypass their domestic laws.

There are other things to think about, too. For example:

• Does your marketing language target US consumers?

• Are you still offering products and services to the US…how integral are these relationships?

The idea to set up shop elsewhere is not as black and white as people think. It’s also setting a dangerous precedent of, “We’ll just forget about the US (for example) and move all the innovation and developments we’re working on somewhere else.”

Entrepreneurs emerging in that market would then move talent away from the country. But it would be foolish to ignore a country like the US when so much venture capital is pouring out of there!

Lots of things have been poppin’ since Rishi Sunak became the facecard for crypto in the UK. A16z setting up their first foreign office in London is bullish AF and reflects on the positive push for the UK to be a global crypto hub.

What does this mean for the UK market?

• It’s a positive move, showing UK regulators at quite a balanced light. It means overseas businesses are looking at UK regulations on crypto and they’re liking the approach we’re taking.

• Still think with the FSMA coming in the UK market might take a short-term hit…VCs and bigger companies might not be here as much but long-term it’s the right direction.

• FCA are really trying to have genuine engagements and meaningful discussions with others in the industry but businesses are underestimating just how much there is to do in defining what regulations are best

The market deserves to see better and progressing products, and consumers deserve to use the very best services and products too. It seems the way policymaking and reforms are happening in the UK to help advance the use case for crypto is showing huge signs of favourability.

Some dope developments happening include:

The FCA announced their 2023 priorities as ESG, crypto assets and AI.

The Law Commission of England and Wales have published recommendations for reform and development of the law relating to digital assets.

Some not-so-dope but necessary developments have been:

From 8 October 2023, marketing of crypto assets in the UK will be subject to a general restriction on financial promotions, breach of which is a criminal offence.

Hand in hand with this development, the UK Financial Conduct Authority (FCA) has unveiled new and near-final rules in Policy Statement 23/6 (PS23/6).

Across the board we are seeing a universal effort to get more laws in place to advance the industry, but we aren’t going to get to a position where we have one harmonised framework. Different jurisdictions are going to approach things differently and this is largely because of culture. Different countries hold different values and therefore will prioritise different principles e.g. America favours corporations, EU favours consumers.

The movements in the UK in comparison to other nations reflect that. For example, the application of the general restriction on financial promotions to crypto assets brought forward by the UK government under the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023, with goals to caveat consumers when it comes to crypto assets investing. Although, there’s anticipation that (FPO23) will impact crypto startups and smaller companies more in the short-term. Bigger companies and VCs are more likely to have the capital and resources to comply with it in the short term.

But lawyers and regulators think this is a necessary move towards the right direction in responsible crypto investing.

1. There are an amazing amount of resources out there that are free online, made by brilliant minds who have thought these things through. 🧠

2. Crypto Twitter space is great for hearing things about the industry, but there are numerous official resources from lawyers, regulators, and policymakers alike which outline and simplify a lot of these things to founders/business owners and individual investors— just search outside of the bubble you’re in. 🫧

3. Stress-test your business(s). If there are new pieces of legislations coming in, take the time to sit and read through them. (Because whilst lawyers think, “Oh this is going to be great!” they can actually fundamentally misunderstand how the technology works). 📖

If you’re interested in this space and actually want to shape the future of legislations in crypto, take time to read draft legislations and bills, or engage with lawyers you see on social media and send them messages on what you think would or wouldn’t accurately work in the technical and practical sense. It shouldn’t just be up to lawyers to figure things out because the work they produce may not accurately reflect the technology.

The next 12-18 months are going to be very pivotal. We’ve seen lots of incoming drafted legislations and reforms in the last year + new case laws in the US almost every month.

As those come into force, how we see them work in practice and the additional guidance alongside reports and advisory bodies will largely determine the trajectory of crypto towards the next bull run.

Keeping MiCA on both investors and founders’ radars is an extreme gigabrain idea because it’s currently being considered as the 💫 ‘golden standard’ 💫 of crypto regulations. But the challenge perhaps is MiCA seeks to create an entirely, new bespoke regime that applies across EU member states. Not an easy feat by any means! But if it works, then we’ll see how other global regulators will turn to look at MiCA for inspiration for their own nation’s framework.

And maybe then, the ‘R’ word in crypto wouldn’t be so hated.

*Bear in mind that these are a case-by-case scenario. There’s a difference between crypto assets that are used solely as digital collectives and crypto assets that present a utility.