Twali Wrapped - International Virtual Asset Laws, the Importance of the ConsenSys Lawsuit, & America's Slow Approach to Crypto Regulation
Twali Wrapped is a community-driven initiative to track 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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This Week on Twali Wrapped - March 18th
The MiCA: EU’s crypto regulations package, On Virtual Assets for Ukraine, and the Virtual Asset Regulation Law in Dubai
The Importance of the ConsenSys Lawsuit
Ukraine’s Web3 Marketing Strategy
The Long Haul for American Digital Asset Policy
On the Docket
Welcome to the Docket - A Bulletin Board of the most important legislation either proposed, or passed, in the past week.
MiCA (EU)
On March 14, The EU’s crypto regulations package, Markets in Crypto Assets (MiCA), was voted on and passed by the Economic and Monetary Affairs Committee. The drafted regulations cover supervision, consumer protection, and environmental sustainability of crypto-assets, without a previously contested and controversial clause that would ban Proof-of-Work mining.
Next, MiCA heads into negotiations in the European Parliament, the European Commission and the Council of the European Union.
On Virtual Assets (Ukraine)
President Zelensky signed a law “On Virtual Assets” on March 16, which allows foreign and Ukrainian cryptocurrencies exchanges to operate legally in the country, and establishes regulatory agencies and protocols, as well as investor protections for virtual asset markets. More on this, below.
Virtual Asset Regulation Law (UAE)
On March 9, Sheikh Mohammed bin Rashid Al Maktoum announced Dubai’s first virtual assets law. The law establishes the Virtual Asset Regulation Authority, which will oversee the regulation, licensing, and governance of virtual assets.
ConsenSys Now Faces Two Suits from Former Employees
The company behind Metamask, one of the most pervasive wallets in the world of web3, announced a monster $450 million Series D raise this week. The raise featured participation from ParaFi, Temasek, SoftBank, Microsoft, and Sound Ventures among others and values the company at $7 billion. The money stemming from this raise is largely expected to be used in advancing and redesigning Metamask as the company builds towards an airdrop and DAO launch later this year.
However, there has been little time for festivity or celebration — that’s because ConsenSys is being sued in two separate suits: one by a former exec and another by a swath of former employees alleging misconduct at the company.
The first suit, which was filed by former investment head of ConsenSys, Kavita Gupta, alleges that the firm failed to pay certain bonuses from a fund she managed from 2017 to 2019. She also noted that ConsenSys “created a toxic work environment” for women. The former head of ConsenSys’s venture capital arm asked for $30 million in damages. She accused the firm of fraud, among other things.
At face, those damages might sound excessive; they sound like the invention of a disheveled employee looking to spite their former employer. However, a new lawsuit filed this week by 35 employees might lend some credibility to the claims.
35 former employees announced their desire for an audit this week, citing “serious irregularities” that occurred in 2020. Among them are claims that the ConsenSys’s investment company, ConsenSys AG, transferred intellectual property and assets to another company called ConsenSys Software Incorporated. These employees, which claim they were left in the dark about the transfer of assets, represent around 50% of all known shareholders. They want the assets back where they belong.
The company, of course, disputes these legal claims. In their eyes, there’s a rational explanation for all of this — the company claims that Gupta lied about her credentials to get hired (and they filed a complaint to try and support this new revelation) and that the swath of investors simply have things wrong.
However, these lawsuits are notable for their proximity. They come just two months apart — levied by employees against one of the most powerful forces of nature in the crypto space. For that reason, we’ll be eyeing these cases as they develop, as well as anything afflicting ConsenSys or its business.
How Ukraine Built a web3-esque Marketing Machine That Raised Millions
Ukraine’s enormous success in warding off its next door neighbor, Russia, has shocked politicos and war experts. The Eastern European country also made history by including crypto in its war effort. As far as we know, it’s the first time that any country has accepted donations to fund an active conflict or humanitarian crisis.
We can attribute some portion of that to the goodwill of the crypto community. However, a lesser-considered function of their three-comma fundraising haul was Ukraine’s slow-but-powerful rise to prominence in the social sphere.
Before the West even mulled the chances of a conflict between Ukraine and Russia, the country’s official socials were being built and curated to connect and resonate with a meme-y digital-first generation. Maybe the country’s KPI was increasing awareness of Ukraine among users in industrialized economies — perhaps one “successful outcome” might have been giving Americans a reason to Google “where is Ukraine?”
Viral tweets like this one, posted in December 2021“ target=”_blank">https://twitter.com/ukraine/status/1468206078940823554?), speak to some of the early success in Ukraine’s social strategy. This meme got over 670,000 likes. However, in the weeks since the conflict started to get “more real,” Ukraine turned its scrappy, almost web3-esque, social strategy — and its war plight — into an overnight success and a war chest.
One figure in support of that? Ukraine’s sheer growth in followers. On Feb. 17, 2022, the country had just 305,634 followers according to Social Blade. That figure grew by double digits in the week after the invasion started. A month later, the country is sitting at a healthy 1.935 million followers. While their follower growth has returned to normal-ish levels, at the core of that organic growth lies an unprecedented media machine.
Lest we forget: there’s also a financial machine, too. Ukraine, which legalized digital assets this week, used its highly-online meme-loving crypto-sympathetic social presence to raise more than $100 million in Ethereum, Bitcoin, and other cryptos.
There are a lot of takeaways you could boil from this. However, we’ll go for the most entertaining one: Ukraine’s socials are proof that branding, awareness, positioning, ideas, and the ingenuity of your social/marketing hires make a huge difference. Ukraine’s propaganda machine wasn’t built without foresight, but its ingenuity offers an unlikely source of direction for brands and creators plotting their course.
The U.S. Government’s New Look at Crypto
Cryptocurrency enthusiasts have been quick to point out the U.S. federal government’s sclerotic approach to regulation. While other advanced economies have pressed ahead with approving direct investment vehicles for Bitcoin, for example, the U.S. has preferred to take a wait-and-see approach. However, two recent publications indicate that the Biden Administration is moving from wait-and-see to active investigation.
For starters, the U.S. Federal Reserve released a discussion paper regarding Central Bank Digital Currencies (CBDC). The paper provides a thorough examination of current issues facing the U.S. monetary system and demonstrates a sound understanding of digital assets. But policy wonks hoping to find firm conclusions were likely disappointed. The most instructive aspect of the report was not the content itself, but rather the stakeholder consultation questions posed at the end. The thoughtful questions indicate a genuine interest in spurring public policy debate on the merits of a U.S. digital dollar and how it may interact with other digital asset systems (read: cryptocurrencies). You can bet that legal and compliance experts are preparing their responses.
It is important to note that the U.S. Federal Reserve is at least nominally independent from the White House and other executive agencies. The document should not be construed as official Biden Administration policy. Nonetheless, the Federal Reserve plays an important role in the regulation of the U.S. financial system. What the Fed says matters - and the organization helps set the agenda for financial policymakers.
The federal government action that received more fanfare was President Joe Biden’s recent Executive Order on Ensuring Responsible Development of Digital Assets. The broad ranging order includes all the policy jargon one would expect (climate risk, financial stability, and consumer protection, to name a few). Buzzwords aside, the real substance of the order boils down to directing federal government agencies to conduct further study on six priority regulatory topics.
None of this is likely to happen quickly. The order explicitly directs the Department of Treasury, Department of Commerce, and other federal agencies to work with each other to determine a regulatory approach. The so-called “interagency consultation process” happens on a variety of policy topics, and it is notoriously slow. Navigating the bureaucratic layers of one agency takes plenty of time and effort. Adding other agencies to the mix tends to increase the workload exponentially.
Still, President Biden’s marching orders are helpful in galvanizing an official U.S. response to cryptocurrency and web3 development. Both reports emphasize the desire to promote financial stability and maintain U.S. financial leadership. No American administration wants to relinquish the central role of the U.S. in the global economic system. Of course, for many in the crypto sector, moving away from centralized, nation-state control of the monetary system is a feature, not a bug. As the U.S. government begins to understand the true potential of decentralized finance, will policymakers become more or less inclined to support the industry with favorable regulatory frameworks? That is the question we will all be watching closely.
Twali Wrapped
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