Marco Tullio Giordano - Regulating DeFi. Will the lawmakers ever catch crypto-boys?

is one of the first lawyers to study this technology to embrace this technology to help this technology so we can continue to evolve and to reach a mass adoption.

Thank you.

So before uh I move on the talk is regulating DeFi. Will the law makers ever catch crypto guys? So a few few slides.

Can the law catch the DeFi?

Right.

That's the question. That's the question. We will see together.

Uh in the meanwhile, hi everyone. Thanks for having me here. My name is Marco Tulio Jordano. Unfortunately, I am a lawyer, but I'm trying to quit. If you can see, I will uh throw away also the the shirt before the end of the year.

Anyway, uh where I have

Yeah, you good.

Okay. I have been around in the Italian Ethereum environment for a while, but for who doesn't know me, I am a lawyer. I have been a criminal lawyer uh passionate about technology and so when the beginning with the ICO of Ethereum but probably before with the Bitcoin white paper I started to study this environment and the legal aspect I did also some other things uh data data protection anti-money laundering un unfortunately but as a criminal lawyer it was my destiny uh but today I'm here just as a researcher and observer of this world what I would uh talk about uh the playful tagline says we have lawmakers catch crypto boys no it is a reference of the uh cat and mouse's uh dystopic word in which uh police always try to chase uh bad actors, but sometimes they catch not the bad actors but just normal people like like us. And uh what has happened in the last five years, five, six years, they started to focus on this world and uh while this word is distributed and decentralized. So it's very difficult to put uh in the target every users they try to find the gatekeeper no the centralized point governing this environment.

So at the very beginning they focused on the crypto asset service provider not the provider of services. It's very simple to put them in the edge asking them to apply for a license like a traditional financial platform do quarterly report about their users and make KC obligation on the platform and uh uh report any sus suspicious transaction. It was very simple and if in the beginning some checks centralized exchange refused to answer to this pressure at the very end with regulatory pressure and uh criminal investigation. We can think about Binance in US obliged to pay for billions of sanction because they did not implemented uh KC or uh Kraken put in the edge because of his staking program. uh and so they regulated the environment of platform but it was not enough for them and so they move their attention to the stable coin.

Stable coin are the fuel, the innovation of defy. And uh while in the beginning it was easier to program, issue and govern a stable coin, we can think about not only USDT but also maker DAO for example. Uh now is quite impossible. is quite impossible because if you want to issue a stable coin, you have to acquire a banking license or a payment uh institution license. You have to deposit uh the collateral in a real bank and you have to put backdoor code into your code in order to allow uh authorities to check transaction block transaction freeze fs and so on.

Also for what interest us as a builders or passionate of defi they completely burned the algorithmic stable coin. So for for example in Europe a stable coin like D is not allowed because it's not collateralized by fiat fiat money. What remains out of scope? Probably the token, but also the token in a world where you can type some taste on the keyboards and issue with very simple uh effort a token. Even if you want to issue a token, you have to go through the regulatory scrutiny.

So it is not important if your token is a security, a utility, a payment token, but also a meme coin or a useless token, a governance token. In every part of the world, we find a regulation and the worst thing is that these regulation are different. So maybe sorry you can issue a token abroad out of Europe, but you cannot provide this token to European citizen. uh or otherwise you can face the the listing on the on the uh centralized exchange and also as a platform. Think about uh unis swap you can be forced to delist some tokens at at uh list on the user web interfaces.

So not on the liquidity pool with smart contract but over the internet. But this uh this environment is facing a new challenge because uh uh regulators for regulators is not enough to put in the edge and regulate the centralized aspect of the crypto asset environment. Uh now they are focusing also on the decentralized aspect. For example, if uh the FI project has a sort of centralized point of failure, that will be the focus and the target of the regulators. Uh we can think about for example Tornado Cache.

Uh they put in the angle the developers of tornado cache uh with an indictment related to the web interfaces. They cannot ban the code and uh let me specify something about it. Uh the code of tornado cache was public on GitHub. GitHub is a public uh repository for uh software code. On GitHub we can find the code of every malware in the world, every virus informatic virus in the world.

Even the worst, even the one can cause cows incident all over the world. Nobody never asked for the ban of that code. When they put the code of tornado cash so of a mixer, they asked to GitHub also they imposed to GitHub to to uh limit the access to that code. When they understood that they cannot limit a smart contract deployed on the on the net, they started to accuse the front end developers. So who write the code of the internet pages where you can enter in contact with the smart contracts.

uh is a is a story of this week because uh Roman uh the second de main developers with Alex Perv is under scrutiny and under juridical procedure in US they are accusing of uh uh conspiracy in money laundering. So they say okay you were developing a website used by uh Lazarus group and you help them to do what they wanted to do and you have a gain from that because uh you received a token uh as a commission fee. Then they turn turned their attention on nodes and validators. Again after tornado cash of asked to all the main validators of Ethereum to not process to not validate that blocks uh including transaction coming from tornado cashache. This was a an it to the democracy and the freedom of distributed ledger technology because if validators start to not validate transaction Ethereum is not uh useful anymore.

But uh after a first attention now the the the things uh going back are going back regularly in the in the usual manner but also they start to uh put in the focus the issuer the sellers the developers. uh the first time I speak at spaghette the first year spaghetti ATH I was speaking about the liability of developers and most of the de developers at that event answered me we don't care about it because we are a team we are anonymous we are decentralized the story of perv of Romans no demonstrate that there is no anonymity anonymity or podonimity in this word even because my theory is that from anonymity and privacy one of the two most important aspect of uh crypto asset we are moving very fast uh towards uh onchain clarity. You cannot do a transaction that every everyone in the world can see it can dox you uh can know who you are. This for three reason. The first one is the tech development in five years.

We we are testimonies of the uh large development for asset tracing software onchain investigation and so on. Uh think about chain analysis uh crystal intelligence global ledger dozen of these companies all over the world running investigation on the blockchain. The second force is the regulatory pressure. We had the Mika, we had the ML directive, we have the travel of found directive, we have the LT pilot regime. You cannot do anything without the regulators put you in the focus.

The third and most incredible force uh is a phenomenon raed this year. I call it collaborative justice or communitydriven justice and is the case of the bibac or arkham intelligence platform. So a platform where you can ask for intelligence placing a bounty promising a bounty and let the community do the investigation for you. With these three forces converging against the the anonymity and the privacy uh everyone is under under attack. I already speak you about the tornado cash but this is important even because the community started to create uh anti-corps so defense by itself.

What they do? They changed the code from tornado cache to privacy pools. Privacy pools is a sort of mixer 2.0 where the user can isolate the bad actors leaving them alone into the pool and allowing authority to identify them. But the real question is all this effort by regulators.

It will have uh fortune or not because it's possible to control what is unstoppable really decentralized really distributed really. I am quite old, older than more than you and I have been around for a while. When I started in uh early 20s, uh the the focus was on a petray and peer-to-peer technology. Now is quite unused because it's not anymore helpful. But uh uh at the very beginning we had Napster.

Napster was a peer-to-peer software but it has some aspect centralized and the US authority reached the their goal stopping the centralized nodes and point of that software. uh almost a couple of month after the stop of Napster, developers created Open NAP, an open-source algorithm fully decentralized and not stoppable. Now, uh open up is still working at is at the basis of B torrent or other peer-to-peer software. So probably the answer to this question and the the defense uh against this risk is to remain the more decentralized you can because uh it's impossible to go through decentralization and against every nodes every peer of of the network uh you cannot ban open source in US one of the uh most important war that uh the guys are conducting against the authority is the freedom of speech. Write code is just a freedom of expression.

I write code then I'm not liable for what people do with that code. as same as uh if I create knife I'm not liable for what people do with that knife or if I ruin highways is not my fault if people ruin a lot and do incident on the on the street and also you can ban the rip and not the idea the tornado cash ban is a clear example no they tried to stop some addresses hosting the the deployer the smart contract you can just bring the code and deploy on another on another address and start again uh with the function they wanted to stop. So my call to action is that the fight for freedom is still open and probably you have we have to work for an environment where uh regula regulated defy and shadow defy or unregulated defy can coexist. Most probably who will choose the unregulated trail cannot bring back it found is found on the regulated one. But you can you can be free to to leave out of the regula regulation aspect of this work.

Thank you. I'm open to discussion of our answer and see you around. Enjoy this beautiful venue. Thank you very much, Marco.