The last few weeks have been very "interesting". Since the launch of $TRUMP and $MELANIA, we've seen the memecoin space explode and stretch the limits of what legal systems are designed to handle.

Because if the President of the United States can launch a memecoin, why can't other nations' leaders? So, we had $CAR (possibly?) and, of course, $LIBRA.

This all intersected with an amazing speech closer to home recently given by the Chief Justice Bell of New South Wales regarding the challenges to the rule of law. As Bell CJ put it:

From a lawyer’s perspective...recent events both domestically and abroad have generated a sense of great disquiet and anxiety about the state of society and the rule of law (including the rule of public international law, and respect for basic precepts of territorial sovereignty) in our contemporary world.

Although Bell CJ wasn't talking about memecoins, it highlights how recent global legal issues are being mirrored in the web3 space or, in my view, how web3 is front-running the issues that are likely to become more widespread in the coming years.

The 'Rule of Law' Ideal

You've probably heard it said before that "no one is above the law". This concept is what is referred to as the "rule of law". It is an ideal whereby legal systems aim for all people and institutions within a country, state or community to be accountable to the same laws. This includes lawmakers, government officials and judges.

This concept is fundamental to all democratic societies, ensuring that all individuals, regardless of status, are held to the same legal standards. Of course, as is clear from both historical and more modern events, that is not always the case.

Regardless, legal systems require that those that don't hold up agreed legal standards must be held accountable and compelled to follow the law i.e. enforcement. The rule of law only operates on the foundation of various mechanisms of enforcement whether through penalties, law enforcement agencies or Courts.

Web3 Creates Problems

By design, web3 removes enforcement from the equation by chipping away at the very mechanisms that traditional legal systems have developed over centuries. This is evident in many examples:

1. Borderless nature of blockchain transactions means no single jurisdiction can claim oversight;

2. Decentralised exchanges operate outside of regulated financial systems;

3. Smart contracts execute automatically, without recourse to external arbitration or discretionary rulings; and

4. Many governance structures operate without a central authority capable of imposing penalties.

Of course, the above are ideas and projects that we in web3 want to build out a trustless, borderless financial system. However, as a result, we've created a system where there is no central authority to enforce contracts, no single jurisdiction to interpret disputes and no uniform legal standard governing digital transactions.

As a result, there can be no "web3 law". The only sets of laws that are used to enforce or punish are found in the traditional legal systems of individual nation states.

We've created a system where the 'rule of law' just cannot exist.

A system where jurisdictional ambiguity and lack of enforcement allow even the most blatant misconduct to go unpunished.

What About 'Code is Law'?

To counter the issues with the lack of enforcement in web3, many have suggested that 'code' be considered the law. This is the idea that smart contracts and blockchain protocols are the only enforceable rules within the ecosystem.

There are, of course, clear advantages to such a system:

• Code enforces itself - if a smart contract dictates that funds will be transferred under specific conditions, no human intervention can alter the outcome.

• No subjective interpretation - unlike traditional Courts, which weigh intent and fairness, smart contracts execute strictly based on predefined logic.

However, this rigidity poses some significant risks as, when code replaces judicial discretion, errors, exploitations, or unintended consequences become irreversible.

An example is the Mango Markets exploit by Avraham Eisenberg in October 2022, whereby he manipulated Mango's low-liquidity token price to cash out over $110 million. Eisenberg then openly admitted his involvement arguing that his actions were entirely legal under the doctrine of "code is law". In his words:

I was involved with a team that operated a highly profitable trading strategy last week. I believe all of our actions were legal open market actions, using the protocol as designed.

In the circumstances, it's clear that the 'code is law', best-case, offers an imperfect solution to a very real problem and, worst-case, creates a flawed justification in the mind of market participants that their, otherwise possible illegal actions, are entirely legal.

$LIBRA Scandal

Last Friday, Argentine President Javier Milei publicly tweeted about $LIBRA coin, which was launched with the help of Kelsier Ventures. This coin to "'fund Argentina's development" ran up to a huge FDV but collapsed in a number of hours resulting in $4.4 billion of losses for retail buyers.

Hayden Davis, the founder of Kelsier Ventures, then went on an interview with Coffeezilla in which he, relevantly, admited to:

1. Sniping the $LIBRA token and using insider tip-offs i.e. insider trading; and

2. Profiting ~$110 million from the trading.

But, Davis thinks he did nothing wrong. His belief is that sniping was fine because if his team didn't do it, then someone else would have and that his company's profits can be directed however he thinks fit.

President Milei is facing severe fraud allegations with potential risk of impeachment for "sharing" $LIBRA coin in a tweet.

But where does that leave Hayden Davis and Kelsier Ventures? As far as we know, Hayden lives in Los Angeles, United States and the company is based in Delaware. So, technically, United States regulators would have jurisdiction to charge Kelsier Ventures and Davis. The U.S. Attorney's Office and US SEC dealt with a similar situation when it charged financial services firms, Gotbit Consulting LLC, and individuals related to it for market manipulation.

However, the situation here is unique. We have a potential president who could be impeached based on the findings of the US regulators. Also, the US regulators may uncover more information relating to insider trading with the $TRUMP and $MELANIA coins. If so, will they enforce penalties or jail-time against Davis?

I mean, despite clear ethical concerns and potential violations of securities laws, enforcement has been virtually nonexistent relating to the $TRUMP and $MELANIA coins. The unregulated nature of meme coins allows the Trumps to deny direct involvement, despite clear marketing tactics tying them to the assets. Further, the US SEC is of the view now that memecoins don't fall within its jurisdiction.

All in all, this scandal simply highlights the difficulty of applying the principle of "rule of law" in web3, especially given that some of the most powerful regulatory bodies will struggle to impose legal consequences.

The Path Forward

If traditional legal systems cannot be meaningfully applied in web3, and code is the only true enforcer, then the solution must be to evolve "code is law" into something more structured and universally acceptable.

I don't have all the answers. But it's clear that we can't continue to simply relay on traditional legal systems for consumer protection in the web3 space and that "code is law", although great in theory, leads to some unintended consequences in practice.

So, a more suitable path forward is required. Some possible solutions could involve:

• Hybrid smart contracts - where legal frameworks are embedded within self-executing agreements to allow some level of discretionary oversight. I know some companies and lawyers are actively working on this area;

• Decentralised arbitration courts - blockchain-based dispute resolution mechanisms that integrate both legal reasoning and automated enforcement. This is actually one of my future goals; and

• Standardised self-regulation - industry-wide governance models that provide enforceable rules without state intervention. Although this is difficult given the different "tribes" in crypto, I really believe that this is key to making consumers feel safer in the space.

All in all, it's clear that web3 operates outside of traditional enforcement structures, making it near impossible to apply established legal frameworks to those that engage in misconduct. For web3 to mature and function as a legitimate ecosystem, in my opinion, the phrase "code is law" must evolve beyond a mere slogan. It must be developed into a universally enforceable and adaptable system that respects both decentralised innovation and legal integrity.

Until then, "web3 law" remains a lie, and the rule of law - no matter how vital - remains just out of reach.