Russia Bans Self-Custody & Legal Engineer Jordan Teague on the Relationship between Law & Code
Tennessee's DAO Legislation, Russia also legalizes Bitcoin as National Tender, & Jordan Teague on the Future of Law in Web3
Twali Wrapped is a community-driven initiative tracking the most important developments of the past week for policy, regulation, compliance, and legalities, related to web3.
In addition, we speak with experts toiling with how best to implement regulation and policy changes, while prioritizing simplicity in communication to ensure our reader’s complete understanding of the implication of such developments.
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TL;DR
DAO registration in Tennessee
Russia’s Self-custody ban as they legalize Bitcoin as national tender
The current and future legal landscapes of crypto with Twali Expert Jordan Teague, Partner at Campbell Teague & Core Team at KaliDAO
The Docket
by Lucy Pappas
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed, or passed, in the past week.
DAO = LLC in Tennessee
Earlier this month, Tennessee became the second state in the US to pass legislation on DAO legal registration, following Wyoming. A joint passage of Senate Bill 2854 and House Bill 2645 allows a DAO to register and be recognized as a LLC, if the articles of the DAO state it is a “decentralized organization.” The bill includes other provisions, including those on forming a DAO, management through members or a smart contract, and voting rights. Next, TN Governor Bill Lee must sign the bill to enact it as law.
The takeaway. Similar to Wyoming’s law, Tennessee’s legislation is vague and without much structural guidance, which Twali Expert Jordan Teague argues creates more burdens than benefits for DAOs. It’s still early days for DAO legislation in the US, so we’ll keep an eye out for other states on the move.
Bitcoin as Legal Tender & a Ban on Self-Custody: Legislative Conflict in Russia
This week, a Russian NGO, the Association of Banks of Russia, announced their collaboration with lawmakers on legislation that would “ban” storing crypto in self-custodial or non-custodial wallets. However, self-custodial wallets would not be criminalized, necessarily—instead, refusing to provide private keys to an authorized body would be considered a crime.
In the same week, Russia announced moving forward on legislation that acknowledges Bitcoin and other cryptocurrencies as legal tender. The drafted bill, titled “On Digital Currency,” also clarifies a regulatory framework on crypto mining and trading.
The takeaway. Despite contrasting legal moves that signal possible dissonance between Russia’s central government and financial bodies, these issues are not unique to Russia. Self-custody is a major reason for increased regulation over crypto, worldwide, as it threatens centralized power. Weeks ago, Grant McCarty of the Bitcoin Advocacy Project forecasted that rights to self-custody could become an issue at the forefront of regulation and laws regarding crypto. This is something to pay attention to.
The Jordan Teague Interview
Twali Expert Jordan Teague has been at the intersection of law and tech for a while. Partner at Campbell Teague, she has made their “antifirm” web3 native, offering DAOs, NFT projects, and DeFi protocol, a suite of services like general counsel and NFT IP protection. She also works with Ross Campbell on KaliDAO and as a contributor to LexDAO. A few weeks ago, I sat down with Jordan Teague (@jordanteague.eth) to discuss the current legal landscape of crypto, where it is headed, and where hurdles may arise that we must prepare for.
What legal expertise is missing from web3?
From a high level, I would say that just a deep bench of legal experience is lacking. This tends to be the case in any tech forward field — i.e. crypto. Most lawyers who self select into the legal profession are Poli Sci majors or humanities majors, not math, econ, people like myself. A lot of the lawyers that I've come across in my career are, unfortunately, scared of new technology. When they hear the word blockchain or code, they, at best, glaze over. We're very fortunate to have great legal minds on web3, and the issues impacting web3. But we're still lacking a deep bench because, unfortunately, technology is sort of a barrier to entry for a lot of lawyers.
More specifically, a perspective I see missing is the litigator’s perspective. In my legal practice, one of the things that I've been doing substantially over the past 10 years is handling complex lawsuits in federal court. It gives me a unique perspective on all aspects of law since, if you know how deals fall apart, you know how to build them. So, while I see a lot of regulatory lawyers in web3 and a lot of transactional lawyers in web3, I don't see a lot of litigators speaking up. Thus, we're missing that conflict resolution perspective which is impacting the development of platforms, such as online court solutions, geared towards conflict resolution.
Anti Monopoly Laws and Regulations in Crypto
Yeah, that's a great question. So, full disclaimer, I'm no antitrust expert. But generally, one of the issues in antitrust is, what is the market definition? Obviously, market definitions can be construed broadly or narrowly. To explain what I mean by this let us take the example of Snapchat and Facebook wanting to merge. In this case, the government will generally take the position that the market definition is broad — that both are social media companies and thus should not be allowed to merge. In this hypothetical though, Facebook and Snapchat would take the position that the market definition should be construed narrowly. There are lots of different kinds of social media companies. They're not all in competition with one another directly and, thus, should be allowed to merge.
As applied to web3, I am not a DeFi expert, but I think that it would be fair to say that, while we may not be able to lump all DeFi into one category, we could also subcategorize them. When these companies or protocols start to gain noticeable market share in the eyes of regulators, I think one of the threshold questions would be what's the market? Would it be DeFi generally, or would it be something more specific?
Another interesting kind of philosophical question when we're talking about decentralized protocols is whether antitrust law is as important as it is in the centralized corporate world. Antitrust law is designed, in part, to prevent unfair competition, and to prevent companies from taking advantage of consumers. With a more decentralized protocol, there are a lot more beneficiaries than the top dogs at big tech companies. While I'm no antitrust expert, I'd be curious to know what antitrust experts think about whether or not the laws apply neatly to decentralized protocols and organizations where there is not necessarily one major stakeholder.
What Specific Sects of DeFi Will Face the Most Regulatory Scrutiny
While I'm not a DeFi expert, I know enough to be dangerous to myself and others about the various areas. I would say, generally speaking, there are two areas of law in the United States that I think are going to trip DeFi protocols up potentially and going to require paying attention to.
The securities law regime, which applies to various kinds of regulated parties, including but not limited to brokers, dealers, and issuers of securities. As most of us know, the SEC takes the position that many kinds of crypto assets are securities.
Anti money laundering law and know-your-customer regulations. Those tend to apply to financial institutions such as banks, but they also apply to entities engaged in things like money transmission. That does not just mean transmitters of fiat currency, but also transmitters of assets that double for currency, or are substitutes for it.
While this is definitely not legal advice, I think that DeFi protocols are going to have to grapple with both of these areas and figure out where they stand in terms of these bodies of regulations, and if they are going to market to US consumers. Obviously, this is a global economy that we live in and there are other jurisdictions with their own laws, including AML regulations. So while there is plenty of regulation for DeFi to to grapple with, and I'm not sure which sector of DeFi is going to get the most love from these regulatory agencies, I do think that the securities regime and AML/KYC are definitely areas DeFi protocols are going to need to pay attention to.
The Evolution of the Term: Legal Engineer.
So the term engineer implies someone who builds. I don’t think the term lawyer carries the same implication for people. When people think lawyer, they think somebody who does legal analysis. The term legal engineer to me blends these concepts — legal analysis and building — better representing and thus empowering lawyers’ participation in building this new economy of web3. The term “smart contract” subtly conveys the huge opportunity lawyers have right now to integrate their legal knowledge with coding expertise as we build out the infrastructure of this new economy. If I were a young lawyer right now looking to professionally develop, I would learn the basics of coding. You don't have to be a coder, but understanding how web3 infrastructure works is critical to being able to help strategize with clients about how to structure what they're building. Certainly learning how to code gives you an intimate knowledge of how things work, but I don't think lawyers have to know how to code in order to be good legal engineers.
On the relationship between Law and Code.
I think both law and code define what is going to happen or what is supposed to happen and how. While the difference between code and law is that code self-executes but law typically doesn't. Law needs to be enforced by a police force or by a judicial system. Where things get interesting in smart contracts is that you can almost merge these concepts and have the laws in smart contracts. This is what the parties agreed to. The smart contract is going to enforce those terms, as contrasted with a regular, offline contract where you'd have to involve a court or arbitration for enforcement. So I think here is a really tight relationship between the two that boils down to the party enforcing — whether it is law or code. I'm really excited to see how web3 merges these concepts of code and law further so that our laws can be enforced and administered more efficiently and equitably.