Inside the Group Chat of Crypto Lawyers Then and Now - Darren Sandler

oh yeah nice he was like I don't think he remembers yeah I'm trying to remember the name of that character from Invader Zim uh microphone and this hat lots of innuendo flying around good to go excellent hello East Denver 2023 gather around this is one you're not going to want to miss welcome to uh regulate me Daddy we're gonna be talking about all things legal happening in crypto but of course we needed to assimilate to East Denver a little bit to bring you in uh my name is Jeff Revere I'm the head of tokenization at Republic crypto uh we have an amazing amazing lineup and I'm gonna do some quick introductions we'll start down at the end with Stephen Pally Stephen is a litigation partner and uh co-chair of brown Rudnick digital Commerce group next in line we have Mark golditch who's the general counsel of proximity labs nextly we have Sarah Helena Brennan uh Sarah is a general counsel of Delphi Ventures and Delphi research and then lastly we have Gabe lexnode Shapiro general counsel of Delphi Labs can we give him a round of applause please awesome thank you all for joining us here in my hometown of Denver um let's go we'll start kind of going down the line on this we'll go back to you Stephen to start but um what were the types of projects that kind of Drew you in to crypto and uh and just briefly and then what are you working on right now and what's your area of focus I don't think it's on maybe share how about this one now here we go yes yeah so uh the thing that got me interested in crypto back in 2015 was the idea that you could automate contracts uh particularly I came from a background of someone who sued insurance companies for a living the idea that you could automate the claims process using uh parametric smart contracts really that was interesting I didn't know that you could trade the stuff it took me like a year before I realized that there were markets I've never really been interested I'm not a Trader and I'm actually counter trading indicator um and so the things that I'm working on now that are most interesting I am a um primarily disputable area I focus on regulatory advice government investigations and also um disputes I'm working on a one of the large bankruptcies representing the unofficial creditors committee one of the coolest things I'm working on though too is I have a client that is creating D5 specific insurance policies they're uh they are a Lloyd's underwriter their Lloyd's cover holder they're actually writing real insurance and no offense to something like Nexus Mutual that's not insurance this is actually a real insurance policy that would cover things like rug pulls or um you know very or um complicated exploits I would say those are the two coolest things that I'm working on uh related to crypto thanks Steve yes so I started um in crypto in around 2016 first with Bitcoin what really drew me into it was um just the idea of self-sovereignty and disintermediation and and uh because self-custody uh I spent a long time uh defending Banks uh for about a little bit over a decade and I really grew to hate them and I'm really you know wanted to find a way to disrupt traditional finance and uh after Bitcoin I got really into ethereum and soon after that I I was a Founder uh and founded a litigation Finance um platform on ethereum and you know these were all ways that I saw to sort of disrupt Trad by disrupt big banks give more power to individuals over their finances um and you know I I've stayed with that throughout you know my career since 2015 2016 and most recently with proximity some of the things I'm most excited about are furthering decentralization in the space um one thing that we're rolling out actually this week is something called boss which which is a platform for decentralizing front ends which in my opinion is that's really the Grail right now um as far as taking decentralization to to The Next Step the next layer and finding a way for individuals to run applications locally and to access these um you know these forms of Finance without intermediaries from Soup To Nuts And so I think the more we see growth in the space with regard to decentralization and in particular um those on on ramps and off-ramps and and front ends the better so I'm really pumped about that awesome so I'd say my answer is pretty similar to Mark's on why I got into the space I have more of a public interest background and Concepts around self-subernity and not to get too dramatic but like privacy as a human right uh that sort of stuff really matters to me uh what I'm excited about now is uh at Delphi research they are finally letting the lawyers have a column so we uh Mark Gabe and I have an article a policy leaning article coming out today or tomorrow so please check that and give us your feedback and then at Delphi Ventures we're always looking at like Cutting Edge projects and uh there's always something challenging and new to encounter so it's pretty Dynamic and fun yeah I love it uh yeah so I got into the space mainly because I like creating weird legal structures and deals that are very complicated I used to be an m a attorney and I didn't like very complicated like earn out structures but when I discovered crypto I realized that would be even more weird and complicated so I decided to focus my legal career on that instead uh and yeah it has disappointed so far uh because like you could like reference the code of smart contracts in your agreement and you know like say oh for this certain type of issue like we'll defer to like the outcome of the smart contract and things like that it just gets very interesting like a lot of the agreements I draft have like smart you know have like solidity code AS exhibits and things like that um and in terms of the coolest thing I'm working on I would say it's probably working on a new type of foundation entity uh oriented toward Dows so like like basically Dow adjacent Foundation entities that are more trust minimized like rather than just having uh like directors who just kind of have a vague duty to like the good of the community or something like that instead you set up smart contracts and like cross-reference those the in the Constitutional documents of the foundation or whatever type of entity you're using so they have very constrained discretion and like they can even have like a time delay on some of their decisions and then like the Dow itself could like overrule their decisions if they don't like that so I call those uh cybernetically enhanced organizations AKA cyborgs AKA boards and yeah I'm pretty pumped about that very exciting we must all assimilate to the board eventually here for all of our trekkies and I guess I should have started with this but am I supposed to say none of this is legal advice okay it's just no it's legal advice for me for me oh it's Financial advice and legal advice yeah I have a disclaimer the bill is in the mail right um well so all kind of came into the space from really different interest points and found yourselves in some of the same Arenas some not some commercial some kind of community um but you you're all involved with Lex punks and you've been doing some really interesting work with Lex punks recently and I think as it's related to crypto litigation and what's I mean there's so much going on in the courtroom for crypto right now it's it's kind of hard to keep track of to be honest so we just wanted to talk about really one topic and I think it's pretty expansive Stephen I'm looking at you again or Mark I may ask you to do a better job of describing uh Amicus or amicus briefs and why those have been so important in crypto litigation as of late you know from my understanding it's it's it's like lobbying but no one's been you know uh court appointed to come in lobby it's actually people who are not necessarily necessarily lawyers who can come and participate in these hearings and really help them move along yeah so typically in litigation the only people who get to speak uh can people hear me this microphone working kind of sort of maybe I should use my I'll use my trial lawyer use your outdoor voice so project so usually in litigation the only people who get to talk who get to speak to the court are the parties we have a process in the United States where you can um file a motion and you can ask the court for permission to be a Friend of the Court which is what Amicus means a friend so we first saw that I would say significantly in crypto in the Ripple litigation where uh John Deaton filed a motion to be uh to represent some people as an amicus and that case has attracted a lot of interest it's actually unusual in litigation on the trial court level to see such a significant amount of Amicus activity I historically thought of it as only being something you'd see in appellate courts but I think part of the benefit and so we also did this Alex golubitsky who's sitting back there Alex and I along with Gabe and Lex Punk we've filed an amicus brief in the ukidao case uh in the Northern District California and that case involves a lawsuit against a putative down by the uh cftc our country's Commodities regulator and the court allowed us to be um to be Amicus and allowed three other Amicus to submit briefing I think what was significant there was that there was nobody to speak for the I have to say putative I don't know why because because I'm a lawyer for the purported members of the Dow and as as uh Amici we were able to do that so I would say that's sort of the the import of the of Amicus in crypto being able to speak for and educate the court as to matters um that they wouldn't hear otherwise in the absence of a defendant actually appearing yeah and like and there's like there's an interesting Nuance there right which is like worth pointing out so like Regulators are starting to sue Dows right that that's the that's the headline people always thought that there was some risk of that because it is a dow and it's not an existing well-known type of entity it may be some type of weird partnership or some other type of entity where every single person who's involved with that can be sued and potentially be liable right so the point of what us going in there was to say hey Dows are unique entities right don't just assume they're a partnership um and actually they're sort of like technological tools more so than entities so you know we try to but there's a catch-22 right because if someone from the Dow goes in to try to defend the Dow and say hey I'm a member of the Dow and you're wrong well they just exposed themselves to liability they now showed up said I am a member of this Dao and now they might be the one who gets tagged for all the liability it's called joining several liability so they almost can't defend themselves so we as Friends of the Court were kind of the only ones who could step in without someone kind of exposing themselves so that that's kind of like the Tactical Nuance to this way of approaching things so does that just the clarification for even me can can I participate in in Amicus brief you have to apply to the court to say you know here's why we're we're relevant why we care about this case and then the court will give you may give you permission yeah the new ones there too is when you're an amicus you're only in Amicus as to the issues that the court allows you to be an abacus for so it's not the same thing as being a party of being a defendant in a case so as an amicus you cannot respond to every single motion that in the case of uh ukidao that the government uh files you have to get Court specific information so it's definitely not like from a big picture tactical standpoint it doesn't solve the problem of who speaks for the Dow when the Dow and I'm using scare quotes intentionally but when the Dow is sued I would say too sort of from a risk standpoint both from uh technology Regulatory and frankly a personal risk one question I would always ask when thinking about participating in a Dao is what does that mean what personal exposure do you have um it might not be pleasant to think about but it is a cold hard reality that our Regulators in the United States um certainly are not above going after individual members of these things that's kind of the position that the cftc has taken in the ukidao case Mark were you gonna add something or yeah well in this case the court obviously approved Lex Punk's petition to be an amicus um this is a quintessential type of scenario where Lex Punk will do this kind of this kind of thing for communities now um it's our mission to to Really support devs Builder communities doubt communities and so we're going to pick our spots this was a really good spot for the reasons that that Steven and Gabe just mentioned um for us to to file this type of petition but as The Regulators get more active in the space as they attack more dowels and as we see you know new novel issues so it matters of first impression and in particular ones where members of the Dow may not speak up for themselves may not enter an appearance and there may be a default judgment which could create a body of law that's harmful for the community that's where Lex Punk will will end others others have done this too we'll step in um I think it's really important that you have these kinds of advocacy groups you know and that's just one tool in the toolbox that we that we've used um we're also working really hard on policy as Sarah mentioned earlier you know working on just policy papers um working with uh you know different policy makers and trying to really Shine the Light on the issues that matter to uh these Builder communities into Dallas in general awesome anything you want to add yeah I think that um just in general it's part of a trend I think this year we're going to see a lot of advocacy through different means of litigation and possibly uh preemptive or proactive litigation that's just kind of where we are from a regulatory standpoint so I think it was a trend that kind of established itself but will continue and I would say too the from a trend standpoint what you'll see in this uh preventive or proactive litigation you're going to see challenges based on the administrative procedure act you'll also see the use of what we call in the United States extraordinary Ritz Ritz of mandamus and prohibition there are ways to there are ways to compel Regulators to do things that they are supposed to do or to not do things that they're not supposed to do those are not easy remedies but those are three paths that I see for people who want to take on regulatory actions or yes what's that the three things yes so I would say that three approaches or three of the approaches we will see people use to act preemptively or prophylactically against Regulators will be the use of the administrative procedure act um declaratory judgment act as well and also extraordinary rents Ritz of mandamus and Ritz of prohibition uh would take a little bit too much time here to explain all those in detail but high level those are the tools that as a litigator I see folks using prohibition mandamus APA get all that we'll have show notes um I think we're probably going to stay on the tune of Dallas um I'm just gonna kind of eke get into that even more I think that's what most of this audience is I myself have been participating in Dallas for a very long time I've watched dissolution process and it's confusing um I think it's confusing too because you have token holders and these token holders are members they're not necessarily participants right so you have these this spectrum of participation in an ownership kind of model and it's just it's very very nascent so it's going to be a long road but we've got some really good models in place and so I guess what I want to talk about next is both project Founders and token holders for the last I mean since scenes let's call it since uh ethereum mainnet have been in this kind of looming Doom space with like I'm gonna issue a token what's gonna happen I'm gonna I'm gonna receive and take receipt of a token what's gonna happen and that's really been Securities Law right we've been kind of we've been uh we've had Securities Law kind of jammed down our throats for the last you know call us seven years um what are some other things that we should be on the lookout for as it relates to Commodities protections for consumers like what are some of the things that we should be looking at yeah I could definitely hit that because I do a lot of D5 stuff and I would say again it relates to the Oogie Dao case but a little bit of a different issue which is is there something illegal about a D5 protocol do certain types of D5 protocol violate certain Financial regulations and the allegation in that case which actually was also against the original developers not was that there is a Commodities law in the United States that says it is illegal to conduct or to offer uh a leveraged margin or financed Commodities transaction involving or among retail persons uh unless it's on a very specific type of exchange that is approved and closely regulated by the cftc and and obviously as you might imagine that exchange requires all kinds of kyc and controls it would be impossible for any D5 protocol to comply with that even if they wanted to even if we went into the cftc and said hey I want to register my Ave Fork uh as a you know designated contract Market they'd be like what huh you can't you can't dude it doesn't it just doesn't work like that so basically they said well if you created this protocol uh and you did things like adjust the parameters of it like a credit protocol like you know like an Ave or something such that people can generate leverage off their tokens you are violating this provision because your smart contract system is not one of these approved exchanges right um so I think that is that's the first case like that that they have brought uh that's an that is as I would say that's even a bigger issue than the Securities Law issue because the Security's law issue you can kind of like there is such a thing as legal unregistered peer-to-peer Securities transactions you could do that right there there are different ways um but with the Commodities thing it is designed around a philosophy of mandatory intermediation so there there is no work around to that um so unless the laws are revised uh to accommodate that in some way or the cfdc just decides only to go after you know Bad actors so to speak and leave the other ones along that's like a head-on full Paradigm Clash that's even worse than the Securities laws so like right now for example I'll just say like you know I'm a contributor to Mars protocol which is a like a cosmos ecosystem credit protocol you know that involves leverage and from the front end that you know our company runs related to that protocol like we block we geoblock the us and we don't really only Geo block the us we geoblock vpns as well so um or like we block vpns so that people can and run it uh so I I think like people have to be doing that for now unfortunately if you have that type of protocol and luckily the rest of the world is currently kind of more tolerant toward it and we'll kind of see where it goes in the US but yeah so yeah I think that's like a really big note to hit on it's like hey we're really afraid of Securities coming onto our exchange or me handling the Securities that but there's actually an even stricter law when you're handling in Commodities and that becomes really interesting when you're dealing with amms because I can come in and I can create my own pool right these things are made to be open networks where you can create LPS and you can create positions so let's maybe talk about personal liabilities in this case you know I'm coming on to an exchange they've given me the tools to do so but perhaps I'm bringing a commodity who's at fault there is that the is that the exchange providing the technology for that to be open and for people to do that or is that to the individual who's personally liable for bringing a commodity into that space I would say you have to look you have to I can tell you that Regulators are looking at everyone who's involved uh people who operate front-end websites they're not necessarily the buying the argument well we're just a website that hooks into a decentralized protocol now they may be wrong but I'm not finding a lot of traction with that argument there's all there are also questions about people who are setting up amms using somebody else's website using someone else's technology I would also say that an area of law that I've long thought would be applicable in crypto we're just starting to see um I think we're starting to see a wave is um UDP type claims unfair and deceptive practices claims both from State regulators and federal Regulators I think I saw last week a new enforcement action from FTC you're also going to see the cfpb going after folks I mean the question is there's like they're you know almost two paths One path is totally Degen Anon incredibly careful opsack nobody knows who you are the other is um tightly regulated or avoid the United States if you operate in that gray area I mean I you're looking for trouble basically the gray area that we had for maybe five or ten years which maybe wasn't so gray is um happy hunting grounds for U.S regulars we don't have a predictable outcome basically that's right and when Steven mentioned UDP and cfpb he's talking about consumer protection statutes and consumer protection um laws and you know those are very you know it is very applicable and you can see an area where better disclosures um it would really would really be helpful um it could really be a way to reduce liability if you if you do run the website you do run a protocol you do you know have a new product um to have just best practices that that really do speak towards the issues that consumer protection statutes you know try to solve for and it would be a really good regime unfortunately in the U.S the cfpb um for many years was toothless um and didn't actually help consumers and now that it's ramping up maybe I'll a little bit it's it's being run you know it's it's Senator Warren's baby and we know how Senator Warren you know what she thinks about crypto so um the cfpb isn't going to be um a great spot um for crypto in general yeah so just looking at time and maybe this is a maybe this is a good place to round up I mean I kind of want to ask you guys like favorite color questions and stuff like that that I'm not going to so um so with that said and I mean we're always we're going to be innovating way faster than Regulators right like that's I think that's a constant that we should be expecting but like what is the future for not just crypto because we've had some assignments of crypto in the States but what is the future for like Advanced crypto in the US what does that look like and how do we get there like you know we feel very helpless in the non-legal crowd like what are we doing to get there and what does that look like the short answer is that I think it has to be based on a platform of software freedoms just like in the 90s you know where the original like kind of crypto wars happened it's kind of the same thing here and that ultimately Was Won out on software Freedom so I think it you and I I think the important thing about software freedom is like it actually applies everywhere you use software like I've seen certain regulatory policy positions of like okay regulate the websites I believe the base layer alone uh I I personally don't think that's very doctrinally coherent and I think if people were to create a regulatory regime around D5 websites or whatever people would end run it The Regulators would see it's being N Run and then they would ultimately go after the base layer anyway so I think you have to draw like a hard line software Freedom just using software or publishing software making it available or running it for yourself on your own account uh is is not as an intermediary there has to be a hard line there and we have to like almost we have like an NRA type of approach that this is a fundamental right basically and I ultimately think that will win out just like it did in the crypto Wars as long as people are very consistent about it and that it's about software freedom because at the end of the day I think almost anyone can understand that intuitively why it's important I love it let's go right down the line I also think that the US is just not going to be a leader uh Europe is at this point and so uh we always talk about like the War on Drugs analogy um they're getting it's getting legalized and brought into policy uh uh Frameworks around the world so the US can't like maintain The Stance uh coherently uh indefinitely and I wonder if that's a strategy you know it's like kind of it's like I don't want to be first American I want to be best at market like stumble out in front of us and then we'll we'll step in and and basically do something that's tax beneficial to the states who knows but could be a strategy doesn't seem like one right now uh what do you think we do a lot of psychoanalyzing of regular yeah I can imagine a lot of circles looks like we're about to get the hook I saw you well we're gonna they're gonna wait for Mark and you man let's go Mark what do you think man yeah um well I just pair it with what Sarah said I mean the U.S is not going to be hospitable and um we're just they're gonna have to find out the hard way that they're lagging behind the rest of the world and then and then ultimately change their tune I think that will happen um but they're not going to be a leader does anyone have any quick questions I think you might have had a question yeah go ahead uh thank you absolutely great information I'm a lawyer myself uh what I'm noticing is that we talk about all the money that's made in this space but we do not Lobby we do not Lobby right so I'm thankful that we have lawyers like yourself who are in this space but the thing is exactly what you were saying about having an NRA approach about we see companies like Circle coinbase right poor lobbying however we as a community are not lobbying so when we go and start talking about The Regulators don't understand the legislators don't understand don't talk about all the money that you're making and you're not being sophisticated enough about going and lobbying so I'm that's my point you know uh I'm known as the crypto politician so yeah right it's like we it's like why don't we coalesce around a dow that that does fundraising for them and I've been yes I've been barking up that tree for a long time and it seems like no one wants to step out on that ledge but you know these folks are um and they're doing that with light sponks and they're doing that with amicus briefs and they're doing that to kind of step in and lend their time and I think that that's the first step Steve do you want to give us like maybe a close I am extremely bullish actually and I think the United States will continue to be a place where people innovate the law takes law takes time eventually things will catch up um we're not there yet I think what we're going to ultimately have to do is have a more robust regulatory regime that covers software in general more broadly written and we will eventually stop using Securities laws that were written in the 1930s to apply to 21st and 22nd century risks but long term I'm bullish as hell let's go let's be let's be bullish and positive right that's I think that's gonna that's gonna Forge about that all right uh thanks everyone thank you Denver 2023. thank you to all panelists [Applause]