Crypto Lawyers Unpack Conflicts and Challenges in Senate Mega-Bill – Defendant
Earlier this week when Sen.Cynthia Lummis (R-Wy.) And Sen. When Kirsten Gillibrand (D-NY) dropped their crypto mega-bill, crypto natives breathed a sigh of relief. Its 69-page law did not embody any explicit bans or restrictions, nor did it take drastic measures that would further damage confidence in a sector that is fighting for the weather in the grinding beer market.
Then, everyone came to mind, reading such fine prints. In the words of a crypto lawyer, some of its provisions seem “technically impossible.”
Classified as product
The Accountability Financial Innovation Act is the most comprehensive and important piece of legislation proposed in crypto to date to hit Capitol Hill. Even though lobbyists, lawyers, and legislators have digested and analyzed its measures, a bevy of potential changes has already made headlines.
For starters, the bill would classify most cryptocurrencies as commodities rather than securities, potentially saving the industry from the hard line and costly reporting and registration requirements of the US Securities and Exchange Commission.
The big question is what does the bill mean for DeFi and the dream of cutting off middlemen from our financial lives and promoting a more just and transparent system?
Crypto-centric attorneys who spoke to The Defiant this week believe that once the bill becomes law, it will have little effect on existing decentralized protocols – at least for now. “The main focus of the Lumis / Gillibrand bill is on centralized crypto asset service providers,” Rebecca Ratig, Aave’s general counsel, said in an interview. “It doesn’t affect the way that operation or the Aave protocol works today.”
Competitive definition
But according to Brandon Ferrick, general consultant at Injective Labs, a research and development firm focused on creating “decentralized financial solutions”, there is a hurdle and it is an inconvenience.
The bill seeks to regulate “digital asset exchanges” and acknowledges that those exchanges may be centralized or decentralized. Although the law does not provide a definition for “decentralized exchange”.
“Is an AMM a decentralized platform for this purpose?” Ferrick said in surprise. “Is it a liquid pool? Is it an underlying protocol? Is that the front end? ”
AMM is an automated market maker that plays a key role in DeFi by allowing investors to trade digital assets without intermediaries or permission. The decentralized nature creates a problem, Ferrick said, because the bill later states that digital asset exchanges can only list assets that are not easily susceptible to manipulation.
One way to think about decentralization, Ferric said, is the inability of manufacturers to change alone or influence the projects or organizations they create.
“Is AMM a decentralized platform for this purpose? Is it a liquid pool? Is it an underlying protocol? Is that the front end? ”
Brandon Ferrick
“So in the case of a decentralized platform here, if the law requires that the platform only list certain … tokens, if the person who creates and publishes it no longer retains the ability to comply with that law, then you are going to 100%. Fails every time, “he said. “It reflects a misunderstanding of what’s going on with the underlying technology.”
In other words, the law may set requirements that decentralized projects, by their design, cannot comply with.
Retig called it an “internal inconsistency” and said he would address confident lawmakers as soon as the bill was debated and amended.
Inconsistencies need to be addressed
“It is almost technically impossible to implement many of the requirements that this bill sets out for digital asset exchange, and so I think internal inconsistencies need to be addressed.”
The provision should be, it is not clear how it can be applied, Ferric said.
“If the law requires that a decentralized system can do something that it can’t, unless you know who is behind the system and can make a change, then it’s almost like, ‘You get into trouble if you get caught.’ That kind of thing, “he said. “The more people complicate things for regulators, the less likely they are to get behind you, especially this SEC – they’re looking for slam dunk.”
Also of concern was the need to register with the CFTC, which has rules regarding the clearing and settlement of transactions, to offer any exchange, Ferrick said.
“Some need to register as an ‘Employed Clearing Company’.” “My question is, what is a register? The team that created the blockchain, who let him go? Does Vitalik register Etherium as a system that cleans?
Gregory Snyder, an Arizona-based attorney and author of TheCod3x.com, says crypto is not the only rule companies can struggle to follow, but a website that covers legal developments in crypto.
Rebecca Ratig, General Counsel, Aave: ‘It is almost technically impossible to formulate many of the requirements that this bill introduces for digital asset exchange.’
He called the bill “a mixed bag.” On the one hand, it allows consumers to keep their assets in a non-custodial wallet, “which is a pretty strong proof of the crypto and defi movement, that people should be able to hold their own money.”
But consumers need to get positive consent whenever protocol and defense service providers change the source code of the protocol, he said, a clause that can be difficult to implement and can do more to confuse consumers than enlighten them.
Protocols that are not completely decentralized must also follow the requirements of the new release, but Snyder acknowledged that this would not be too difficult.
Many limitations
“It simply came to our notice then. We’re going to have some basic protections, but we’re not going to put too much restriction on what you can do once those protections are in place. Place, ”he said.
Ferrick agreed.
“Revealed is pretty cool,” he said. “It’s the kind of thing I think you want to know from someone. For example, if you are going to buy a token, tell us about your founding team, their experience, their background and token – have you sold it before, how, where, why, quantity, how much you have, risk factors, market where It’s for sale. “
Future law
Perhaps the most significant part of the bill relating to DeFi, Rettig said, is a provision to commission an inter-agency study of DeFi protocols. This study could be used to create future legislation.
“We certainly hope that if and when the bill is passed, we will be able to engage and engage stakeholders in terms of talking about how DeFi protocols work, to be able to explain and assist decentralized technology and the software developers that make it decentralized.” Make good policies for the evergreen control of financial protocols, ”the lawyer said.
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