Decentralized finance (DeFi) refers to the use of blockchain technology, specifically cryptocurrencies and smart contracts, to create a permissionless, open-source and transparent financial services ecosystem that is available to everyone and operates without the need for intermediaries, such as banks or brokers. The origins of DeFi projects can be traced back to in 2017, with Maker DAO (decentralized autonomous organization) being amongst one of the first significant DeFi projects incorporating stablecoin, decentralized governance and lending protocols. Initially, DeFiโs progress was slow, but it gained momentum rapidly in 2020, with the emergence of advancements in projects such as Bancor, Uniswap v1, Synthetix, Compound, REN, Kyber and 0x. The breakthrough period of 2020 saw a transformative phase, often referred to as the โsummer of DeFiโ, marked by an increase in the popularity of DeFi and included emergence of prominent projects such as Compound, Yearn Finance, SushiSwap and Uniswap v2. Notably, even when DeFi reached its peak capitalization towards the end of 2021, the size of the DeFi ecosystem remained relatively small compared to that of the crypto asset market, constituting less than 10 per cent of the crypto assets market. This disparity becomes even more pronounced when compared with traditional finance (TradFi).1 Market research indicates that the revenue from the DeFi market was approximately US$11.96 billion in 2021, and it is projected to surge to about US$232.20 billion by 2030. This represents a remarkable compound annual growth rate of approximately 42.6 per cent between 2022 and 2030.2 Such growth is a factor that brings DeFi to the attention of regulatory authorities and policymakers. The authorities are not only striving to comprehend this phenomenon but are also exploring ways to establish regulatory access and control and formulate regulatory responses.
This Article explores the evolving concept of decentralized autonomous organizations (DAOs) in the context of Web3 technology. It raises critical questions about whether DAOs truly represent a step forward in limiting liability in entity governance structures or if they risk centralizing the decentralized. The text discusses the potential of DAOs to address regulatory and tax challenges while also highlighting concerns about their legitimacy and security. It compares the governance structures of traditional entities to DAOs and contemplates the reasons for formal organization pursuant to state statute. The Article further delves into some of the statutory laws in specific states recognizing and governing DAOs. Lastly, it suggests potential improvements in statutory frameworks to enhance legal predictability for DAO users and those seeking to ascribe liability.
The dissertation is one of the first comprehensive national studies of the state of legal regulation of cross-border legal relations on the financial market of Ukraine with a comprehensive study of contracts on the financial markets of Ukraine in the system of international, European and Ukrainian financial markets. The choice of the specified topic is determined by its relevance in the view of the following points. Financial markets are becoming more democratized, the offering of financial services mostly does not depend on borders, the financial market is transforming and attracting new financial technologies. The main task for regulators in financial markets is to preserve the stability of the financial system. Legal regulation designed to achieve the specified task should not be an obstacle to the development of financial markets and compromise their efficiency. Financial markets are centralized and subordinated, and new legal relations tend towards their decentralization and maximum non-interference of the state. Contracts on the financial markets set the task to obtain the greatest economic opportunities for their parties, which becomes possible due to a wide range of financial instruments and offered financial services, which participants in legal relations can choose not only within the country of residence, but also throughout the world. When entering into such cross-border contracts in the financial markets, questions regarding the law applicable to such contracts are important aspects. Due to the complexity of some types of financial instruments, this issue becomes more important, which is important for research. Thus, new unsolved issues before private international law arise. Accordingly, in the first chapter, the author analyzes scientific approaches to the definition of the concepts of "financial market", "contracts on the financial market", โinternational financial marketโ. The structure of the financial market, its nature and classification of transactions on the financial market are determined herein. Further, in the first chapter, the characteristics of "cross-border" and "foreign element" in the financial markets of Ukraine are given, the need to determine the jurisdiction of the counterparty is established, and cross-border transactions are analyzed at the moment in the capital market of Ukraine. In the second chapter, the author directly examines each segment of the financial market and cross-border legal relations in it. Further, the main types of contracts on financial markets are analyzed and the issue of law applicable to these contracts is investigated herein. Also in the second chapter, regulatory regulation at the national, regional (EU) and international levels is defined. Judicial practice regarding contracts on the financial market is studied herein. Further, the General Agreement and contracts concluded with a trader conducting professional activity on the capital market and the client are analyzed. The role of transactions in each segment of the financial market is established and mechanisms for resolving disputes regarding such transactions are considered. In the third chapter, the legal regulation of the main transformational processes in the international financial market and the financial market of Ukraine are predicted. The main obstacles to cross-border activity in the financial market are determined herein. The legal regulation of the EU regarding virtual assets and distributed ledger technology, the corresponding infrastructure of the virtual assets market is analyzed in detail. The main trends for changes in the legislation of Ukraine regarding financial markets during Covid-19 and during the full-scale invasion of the Russian Federation are determined. When conducting the research, the author compares the previous and current legal regulation of Ukraine in the financial market, conducts a comparative analysis of Ukrainian legislation with EU law and the compliance of current legislation with international standards and principles, requirements of international regulators. Case study is analyzed and practical recommendations are provided for improving the legal regulation of Ukraine. The scientific novelty of the results obtained as a result of the dissertation research is as follows. The following author's definition is proposed: "financial market" โ legally regulated mechanism of redistribution of financial assets, which occurs between participants of the financial market in accordance with the current legislation in order to obtain certain economic benefits. For the first time, the need to include the following segments in the composition of the financial market is justified: the capital market, the market of banking and non-banking financial services, the market of virtual assets, the organized commodity market, the foreign exchange market. Since the specified segments of the financial market are the mechanisms on which legal relations arise with respect to various financial assets to meet the needs of their participants. The author's view on the feature of "cross-border" is proposed: cross-border activity on the financial market is defined as the activity of any subject of the financial market, which carries out activity that has international characteristics, including legal relations of a private law nature with a foreign element. The special role of transactions in each segment of the financial market is determined: in the capital market, the role of a transaction of an auxiliary nature (not related to the basic financial asset), in relation to transactions with the infrastructure of the capital market and directly the main agreements regarding a financial asset (financial instrument), the role of a derivative financial instrument as a contract and a financial instrument, not a security, the role of a contract in the financial services market as the basis for providing a corresponding banking or financial service, the role of a currency contract as a type of derivative financial instrument. In order to improve the national legislation, it is recommended to make changes to the Law of Ukraine "On Virtual Assets" in order to harmonize the specified legal act with EU law. In particular, add the following provisions: clause 13, part 1 of Art. 1: 13) distributed ledger technology โ virtual asset market infrastructure technology that implements a distributed ledger of data that is synchronized using an algorithm. Clause 8, Part 1, Art. 1 shall be amended as follows: 8) providers of services related to the turnover of virtual assets โ exclusively business entities โ legal entities that conduct one or more of the following types of activities in the interests of third parties: ... administration by distributed registry technology; Recommended subject to the entry into force of the Law of Ukraine "On Virtual Assets", the Law of Ukraine "On International Private right" to add the provision: Clause 5 Part 2 of Art. 44: 5). regarding contracts and operations concluded with the help of distributed ledger technology โ the right of the state of the administrator of the distributed ledger technology. The classification of transactions on the financial market of Ukraine has been analyzed further (depending on the type of financial asset, the consolidation of obligations, the method of conclusion, the place of conclusion, by the presence of a foreign element, by segment of the financial market, with the participation of an intermediary). The author's definitions is proposed: "contract on the financial market" โ a transaction entered into in any segment of the financial market and aimed at establishing, changing or terminating legal relations with respect to a financial asset and/or ensuring the efficient functioning of the financial market in accordance with regulatory requirements; "international financial market" โ the mechanism of redistribution of international financial assets between participants of the international financial market in accordance with the harmonized norms of international legal regulation of the financial market. Scientific views on conflict-of-law regulation of the circulation of indirectly owned securities, transactions on the financial market concluded with the help of distributed ledger technology have received further development. Recommendations regarding the legal regulation of the virtual asset market in accordance with EU law were further developed, in particular, the provisions on tokens and tokenization as a digital representation of a value or right that is accounted for and stored using distributed ledger technology. The following proposals have been made regarding conflict regulation of transactions on the financial market. Since the analyzed attempts to unify the issues of the law applicable to legal relations regarding securities, in particular by solving conflicting issues regarding securities of indirect ownership, have common shortcomings regarding, in particular, the unresolved issues regarding virtual assets, which leads to potential future difficulties in the aspect of the application of financial technologies, the circulation of virtual assets, it is proposed to enshrine the following: issues arising in relation to transactions made by a transaction on the financial market, including transactions made on the DLT platform, in particular, issues of ownership of an asset, are resolved by the national law of the country that was determined in a specific transaction. In the event that such a right has not been determined by the parties, the law of the country shall be applied: โ in relation to securities of indirect ownership: the right of location of the relevant intermediary โ the formal holder of securities carrying out activities related to the administration of the securities account; โ in relation to smart contacts: the right of the administrator of the DLT platform on which the smart contract was concluded; โ in relation to other
NFT makers are creating NFTs integrated with IP that are being purchased for exorbitant amounts. On the flip side, NFT purchasers are buying up NFTs for these high prices because they may think they are buying the underlying rights. This "Money for Nothing" problem - taking its name from the Dire Straits song - is what this paper terms as the "IP-NFT" Conundrum that explains the basic misunderstanding NFT consumers have about the IP rights (or lack thereof) they are acquiring when they acquire NFTs. Part I of this paper will focus on an overview of NFTs and the lack of IP rights associated with NFTs, or the โIP-NFT Conundrumโ. This section will include a discussion of how NFTs are being defined with respect to a series of trademark cases, copyright law and patents, which is covered in other literature as well as forthcoming papers from the author. Part II will then outline the current marketplace of NFT trading platforms and the โMoney for Nothingโ problem that exists where a mismatch or imbalance is created between consumer understanding of what they are wanting to purchase from a NFT and what is actually really being purchased. Part III will finally discuss potential solutions to the โMoney for Nothingโ IP-NFT Conundrum problem โ e.g., NFTs embedded with smart contracts that automatically embed IP rights upon sale, stronger educational initiatives involving NFTs, or the creation of platforms (or integration of rules and policies on existing platforms) that will facilitate the ideal transfer of IP rights for NFT transactions.
This article delves into the emergence of Decentralized Autonomous Organizations (DAOs), which operate via rules set in smart contracts on blockchain networks. Unlike traditional organizations, DAOs are a collec-tive of individuals coordinating online, without centralized authority, driven by a common algorithmic rule set to attain mutual objectives. Although DAOs are pioneering and hold immense potential as a catalyst for economic productivity and innovation, they remain in their nascent stages. The technology underpinning DAOs also opens avenues for multidisciplinary research, exploring its economic, legal, political, and social implications.
This chapter provides an overview of the developments, trends and perspectives of financial market infrastructures. In particular, it aims to examine the application of technologies for securities custody and settlement. It offers the legal background understanding in respect of securities which are held through banks and other intermediaries necessary to access the highly complex area of cross-border securities law. In doing so, it displays and discusses the relevant legal developments concerning the main initiatives at international and European level that are projected at enhancing the efficiency of post-trade processes related to traditional securities, such as by using distributed ledger technology (DLT). The chapter mainly focuses on international standards, EU legislation and recent legislative proposals as well as on German law as an example of a national legal framework.
Aim . To review the legal neologisms of corporate documents, in particular, smart contracts, recorded in fiction and industry literature, in order to compare the ways of word formation of neologisms from articles of the Civil Code (Code Civil) of the French and court decisions. Methodology . In the course of the study, a continuous sampling of legal neologisms from authentic French texts published between 2008 and 2019 was carried out, on the basis of which the most typical legal neologisms were identified. To determine the extent of their distribution in jurisprudence, corpus analysis was used (French-language corpus and English-language Google Ngram Viewer corpus for 2019). In order to determine the methods of word formation and compare these neologisms with the terms recorded in the dictionary, semantic analysis was used to identify the meanings of neologism terms, as well as descriptive and comparative general linguistic methods. Results . As a result of the conducted research, trends have been established and the main ways of word formation of legal neologisms associated with the use of smart contracts of the modern French special language in the period 2008โ2019 have been identified. Research implications . The results of the study can be used for further application in the field of modern contract law, contracts based on blockchain and agreements in the electronic form, analysis and prediction.
Opvolging van tokenhouders in Decentralized Autonomous Organizations: een vennootschapsrechtelijke duiding Auteurs schrijven in het kader van het honoursprogramma Law Extra van de Radboud Universiteit over de opvolging van tokenhouders in Decentralized Autonomous Organizations (DAOโs). Er wordt duiding gegeven aan de plaats van DAOโs in het Nederlands vennootschapsrecht, waarbij bijzondere aandacht uitgaat naar de opvolging in personenvennootschappen.
Lioba Heimbach, Eric Schertenleib, Roger Wattenhofer
Lending protocols in decentralized finance enable the permissionless exchange of capital from lenders to borrowers without relying on a trusted third party for clearing or market-making. Interest rates are purely set by the supply and demand of capital according to a pre-defined function. In the lead-up to The Merge: Ethereum blockchain's transition from proof-of-work (PoW) to proof-of-stake (PoS), a fraction of the Ethereum ecosystem announced plans of continuing with a PoW-chain. Owners of ETH - whether their ETH was borrowed or not - would hold the native tokens on each chain. This development alarmed lending protocols. They feared spiking ETH borrowing rates would lead to mass liquidations which could undermine their viability. Thus, the decentralized autonomous organization running the protocols saw no alternative to intervention - restricting users' ability to borrow. We investigate the effects of the merge and the aforementioned intervention on the two biggest lending protocols on Ethereum: AAVE and Compound. Our analysis finds that borrowing rates were extremely volatile, jumping by two orders of magnitude, and borrowing at times reached 100% of the available funds. Despite this, no spike in mass liquidations or irretrievable loans materialized. Further, we are the first to quantify and analyze hard-fork-arbitrage, profiting from holding debt in the native blockchain token during a hard fork. We find that arbitrageurs made in excess of 13 Mio US$, money that was effectively extracted from the platforms' lenders. Finally, we identify alarming security risks to the entire Ethereum ecosystem. Around one-fifth of the staked ETH through LIDO (stETH) was locked as collateral on lending protocols. Mass liquidations caused by spiking rates would have devastating effects on the stETH price and pose security concerns for the consensus layer, as staking power could be bought at a significant discount.
German abstract: Am 1. Mรคrz 2023 wurde der Utah Decentralized Autonomous Organizations Act (Utah DAO Act) verรถffentlicht. Dieses Gesetz verleiht DAOs den Status einer juristischen Person und basiert auf dem COALA-Modellgesetz (multidisziplinรคre Gemeinschaft von Experten im รkosystem der Dezentralisierung). English abstract: On March 1, 2023, the Utah Decentralized Autonomous Organizations Act (Utah DAO Act) was published. This diploma grants the status of legal entity to DAOs and was based on the COALA model law (multidisciplinary community of specialists in the ecosystem of decentralization).
This paper examines civil and commercial disputes involving Decentralized Autonomous Organizations (DAOs) and the complex questions of private international law that arise. The legal capacity of a DAO to be a plaintiff or defendant in court varies across jurisdictions, highlighting the need to determine the applicable law to a DAO. A distinction must be made between different types of DAOs. There are currently a few jurisdictions, notably in the United States, that have enacted DAO legislation defining a legal status for such entities. Those regulated DAOs are governed by both computer code and company law. In other jurisdictions, existing company structures can be used to offer a legal wrapper to DAOs. However, the vast majority of DAOs currently in existence are constituted and solely governed by code, posing challenges in bringing them before a state court. The paper explores recent case law and the difficulties in identifying the appropriate party to sue when pursuing a DAO. Using Swiss law as a basis, it examines the qualification of DAOs under private international law and the challenges of anchoring a global digital entity to a specific jurisdiction. The article illustrates these challenges through three types of disputes: governance, contractual, and tort-related. Determining jurisdiction over a DAO-related dispute requires applying private international law rules. Although the paper assumes Swiss courts for convenience, the reasoning can be applied to different legal systems due to the similarities in conflict of jurisdiction rules. However, challenges persist even if a court has jurisdiction and renders a decision, as enforcement may prove difficult, especially on-chain. Additionally, initiating legal proceedings against a DAO presents issues with serving court documents. DAOs offer opportunities for innovative electronic methods of document service, but specific requirements and restrictions exist for international service of documents. Practical difficulties may arise, making it impractical or unattainable to serve court documents on the defendant. The analysis concludes that state courts currently struggle to ensure reliable access to justice in disputes involving DAOs. As an alternative to state courts, opting for Alternative Dispute Resolution (ADR) mechanisms, such as Blockchain-based Dispute Resolution (BDR), can offer a simpler and more efficient solution depending on circumstances. In any case, entrusting dispute resolution to a BDR mechanism avoids the complexities associated with state court procedures.
Decentralized Autonomous Organisations (DAOs) can be understood as collective organizations that are run through blockchain-based smart contracts, which allow token holders to participate directly in decision-making processes. By harnessing the key features of distributed ledger technology (DLT), they are increasingly posing tricky questions for policy makers, supervisors, and legal scholars. Even though DAOs are often claimed to be beyond the reach of national jurisdictions, it is clear that a broad array of legal issues need to be solved for DAOs to achieve scalability and widespread application, namely the lack of limitation of liability, governance concerns, and the definition of token-holdersโ rights. Our paper delves into these concerns and argues that DAOs can benefit from the solutions provided by corporate law over the past decades in coping with management and moral hazard problems involving all complex organizations.
This article deals with a new area of legal research at the intersection of jurisdictional issues (the effect of Brussels Recast in the United Kingdom after Brexit), EU law, and the arbitrability of consumer disputes in the context of Web3 transactions. The topic stems from a recent English High Court case, Soleymani v. Nifty Gateway. The authors tease out the main issues that the Court of Appeal will have to grapple with in deciding this case.