Degen Lawyer's Newsletter

29th August, 2023

GM. Welcome to Degen Lawyer's Newsletter, where we bring you your weekly dose of legal insights, and regulatory updates in the emerging tech and law space. Our expert lawyers serve up curated analysis, hot takes, and expert commentary, sprinkled with a healthy dose of the wacky and meme worthy. Enjoy!

In this week’s edition:

1. Updates from around the world

2. Regulatory Watch: Death of DeFi?

3. Weekly Explainer - ‘Decentralized Insurance’

4. Crazy Crypto News - FriendsTech - Wacky Illegal Security or Genius Social Media Play?

Updates From Around The World

• Big Tech braces for the roll-out of EU’s Digital Services Act

  The Digital Services Act has been hailed as the most sweeping regulation to curb the powers of the ‘Big (Bad)Tech’. It aims to protect users from the ‘worst effects’ of the personalised, privacy-invasive tactics that have become commonplace in the tech world. Users can now opt out of receiving targeted personalised content. Illegal content and problematic products will have to be removed immediately and rule-breakers will have to pay massive penalties of upto 6% of global turnover or suspension. (Yikes! talk about clamping down with a firm fist)

• Microsoft to sell cloud computing to Ubisoft?

  The Microsoft-Activision deal was hailed as the largest gaming acquisition at $ 69 Billion, but it turns out, it was not really a done deal. Not if the British have any say at least! Turns out the CMA (Competition Commission of UK) is the last major regulator to give the acquisition a go-ahead and it’s being a tad bit of a stickler. With a looming $3.5 Billion break-up fee looming in the rear window, Microsoft out of desperation has put forth a new proposal to the CMA. Microsoft will sell the cloud streaming rights for all current and new Activision games released over the next 15 years to Ubisoft. Thus, Microsoft will not be able to release exclusively on Xbox Cloud Gaming – or to control the licensing terms of Activision Blizzard games for rival services. Check out our explainer video on the situation before this development for more context 👇️ (Thats one costly prenup)

  

• India pushing for Global Crypto Regulation through G20

  With the G20 summit set to begin in a few weeks in India. Indian PM Modi has urged international cooperation to establish a global framework for regulating cryptocurrencies. He drew parallels with the aviation industry, where global regulations exist, and urged countries reach a similar consensus for crypto. India's presidency of the G20 puts it in an interesting position to spark conversations on an international stage. However, given the financial and monetary implications not to mention the cross-border trade and ‘private currency’ based woes raised by India, the global consensus suggested here might be little more than a Trojan Horse to bring in a clampdown on crypto. Only time will tell though.

• Spains AI Task Force

  Spain has established an AI Task Force. The Spanish Agency for the Supervision of Artificial Intelligence (AESIA) is set to come out with a national digital strategy, the aim is to make AI development in the country “inclusive, sustainable, and citizen-centred and to help identify and combat harms in specific sectors. 

• Reliance forays into Blockchain Space

  Asia’s richest man and Quintessential Indian Uncle Mukesh Ambani announced that Jio Financial Services (JFS) intends to establish itself as a finance and payment powerhouse and intend to explore CBDC and Blockchain to do so. Soon Jio Coin (with Nita Ambani’s face on it) will replace the Indian rupee) you heard it here first folks.

Regulatory Watch

Death of DeFi?

In a troubling development, the United States Treasury Department has come out with a proposal to bring ‘brokers’ to track the Profit and Loss Statement of users, issue tax statements and undertake KYC of their customers. There’s a lot to analyse in the 282 page report, luckily our experts have gone through it and broken it down for you:

1. The ambit of “Crypto brokers” is so wide that it would include crypto trading platforms (centralized and decentralized), crypto payment processors, and certain crypto wallets (including Metamask and Trust wallet)

2. Crypto brokers would need to collect and file information on their customers to the IRS.

3. Brokers would need to report information on customers’ tax positions via a new tax form.

4. DAOs and certain wallet providers could also fall under the wide ambit of the definition of broker.

Why this is problematic?

The very essence of DeFi is permissionless, peer-to-peer transactions. The fact that a user gets to control their own crypto through a self-custody wallet and holds their own keys and consequently can transact without the state breathing down their necks is fundamental to the ethos of the tech.

While the rules seemingly acknowledge that users of self-hosted wallets manage their own transactions, it paradoxically tries to identify third parties responsible for these transactions.

Public hearings are scheduled for November 7 and 8, 2023, to discuss the draft regulations. Both the Treasury Department and the IRS have expressed their willingness to consider public comments before finalizing rules. The far-reaching implications of these regulations cannot be overstated!

Weekly Explainer

Decentralized Insurance

Decentralized insurance is a type of insurance built on blockchain technology. It allows users to insure their assets without the need for a centralized insurance company.

How does it work?

It works by using smart contracts. When a user purchases a decentralized insurance policy, the terms of the policy are encoded into a smart contract. If the insured event occurs, the smart contract will automatically pay out the claim. Less time fighting over the claims and the insured has peace of mind.

What are the benefits?

Decentralized insurance is still a new technology, but it has the potential to revolutionize the insurance industry. Some benefits of this technology are:

• Increased transparency: The terms of the insurance policy are encoded into a smart contract, which is publicly visible. This makes it easier for users to understand what they are covered for.

• Reduced costs: There is no need for a centralized insurance company, which can save users money on premiums.

• Increased efficiency: Claims can be processed automatically, which can vastly reduce the time and stress it takes to receive a payout.

Here are some decentralized insurance services*-

• Nexus Mutual: Nexus Mutual is a decentralized insurance platform that allows users to insure their cryptocurrency assets.

• Etherisc: Etherisc is another decentralized insurance platform that allows users to insure a variety of assets, including property, travel, and health insurance.

• Cover: Cover is a decentralized insurance platform that is focused on insuring DeFi protocols.

*Decentralized insurance is a complex topic, and there are many different ways to participate. The examples given above are for educational purposes only and we do not endorse them. It is important to do your research before getting started, and to understand the risks involved.

To learn more about such concepts, visit our resource page linked below or follow us on Instagram where we put up videos explainers.

Crazy News This Week

Imagine buying and selling "shares" of personal social media accounts. Sounds bizarre, right? Well, get ready for Friend.tech, the decentralised social media platform that's turning heads and raising eyebrows. This platform lets users trade these social media "shares," and it's gained more than just attention - it's brought in over $8 million in trading volume in less than 24 hours! (with over $1 Million in fees) 🚀.

However, then it swiftly fell about 87% in 5 days from then, because of course it did 🤷‍♂️ 

Hold on, though lemme explain - this isn't your average meme stock situation. It is centred on buying and selling “keys” that enable the buyer to send private messages to the seller, with the platform reportedly taking a 5% cut. It's attracted massive influencers including UpOnly podcast host Cobie, YouTuber Faze Banks and Russian protest group Pussy Riot.

However, the whole situation got Legal experts buzzing, and it's safe to say that the US Securities and Exchange Commission (SEC) has its eyes on this one. With dual 5% fees on each transaction (one for the platform, one for the account holder), it's starting to feel like the stock market. In fact, influencers can even share fees with buyers, mimicking dividends from public companies.

But here's the twist: these "shares" aren't just tickets to admission. They're being sold with the potential for capital appreciation. Just like stocks, as more people join and buy into these social media accounts, their value could shoot up. It's like having a piece of the influencer action, and everyone went diving in headfirst.

The question of course like with any crypto token is: Could this be a new form of unregistered security offerings? Are influencers on the hook for price fluctuations? And what's up with the lack of a privacy policy? These are the questions that are starting to buzz in the crypto community.

And guess what? As ridiculous as you might find it, the regulator thinks so too. The SEC is getting out its playbook for this. The success and publicity around Friend.tech might be enough to trigger some serious oversight, much as we saw with the SEC's Ripple case.

As the platform gains traction and the SEC watches closely, it's clear that the world of crypto never fails to surprise and entertain us.

Stay curious and keep those wallets secure!

Thank you for reading!

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