Venezuela today announced that it will be pegging pensions in its Petro Token (see here). As we hear more of this government crypto in the press we need to look more carefully at its wider implications for the Ethereum network and market infrastructure.
The US imposed sanctions on Venezuela with Executive Order 13827 of March 19, 2018.
Such sanctions apply to US persons including US legal entities.
The prohibited activities are (full extract below):
- “provision of financing”. This would equate to purchasing the tokens in the ICO
- “and other dealings”. This is a wide activity and would feasibly cover transacting with the token, including buying or selling the token or facilitating the same. Exchanges that list Petro Token would fall foul of this
The issue remains what impact would these sanctions have on:
- Exchanges allowing for the trading of Petro Token
- Brokers dealing in Petro Token
- Decentralised exchanges providing liquidity in Petro Token
- Purchasing Petro Token from a secondary market
There is a fundamental issue here which is that Petro Token ‘apparently’ is an ERC20 token (see Etherscan smart contract. I say ‘apparently’ because the last transaction was 112 days ago), and now the Ethereum network is faced with the issue of a sanction listed token being transacted generally on the network. Miners that will be processing transactions will inadvertently now be facilitating Petro Token. Hopefully the gambit and scope of the Executive Order will not capture this type of activity otherwise mining Ethereum will by default be outside of the reach of US persons.
If you look at the reaction from some of the exchanges in the market you can see that most have prohibited withdrawals, trading and listing of Petro Token. See Bitfinex Blog here.
There are other concerns which may lead to falling into the scope of the Executive Order. If someone sends you Petro Token to your Ethereum address there is no way to prevent receiving the transaction as the ERC20 token does not have any transaction controls. This could become easily abused by individuals wishing to just send tokens to Ethereum addresses in a ploy to prove sanction busting by others. I should hope that knowledge and intention will be a material defence if it were to come to that.
There is another aspect of these sanctions that is somewhat worrying for the decentralised exchange market. At the moment you can list PTR (see Etherscan) on a decentralised exchange and use the 0x protocol for settlement. This means both the exchanges and potentially participants in that market may be targeted by the Executive Order.
This is the issue with ERC20 tokens and decentralised exchanges. You can’t choose your counterparts, or filter liquidity in the market and you can’t stop a token from being added to those markets. That is a design principle of decentralisation in its current form. But the reality of Sanction busting is unfortunately a reality that most traders would not want to be confronted with.
Thus we need to build compliance into decentralisation!
Blockpass — which is an identity application — is soon to introduce an identity protocol for Ethereum called ‘Veripass’. This protocol layer will create a filter for decentralised trading that will only allow certain assets and verified counterparties to trade together. We anticipate being the first protocol to support the 0x upgrade for compliant trading (see here).
Decentralisation is the goal but not at any price. We can balance compliance and decentralisation in a way that works for those that don’t want to compromise compliance (or their liberty for that matter) for the benefits of a more user control and self-sovereign world.
See Blockpass Telegram for more updates.
Extract from Executive Order
Section 1. (a) All transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, are prohibited as of the effective date of this order.
(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted before the effective date of this order. Sec. 2. (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibi- tions set forth in this order is prohibited.
(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited. Sec. 3. For the purposes of this order:
(a) the term ‘‘person’’ means an individual or entity;
(b) the term ‘‘entity’’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;
© the term ‘‘United States person’’ means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches of such entities), or any person within the United States; and
(d) the term ‘‘Government of Venezuela’’ means the Government of Ven- ezuela, any political subdivision, agency, or instrumentality thereof, includ- ing the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA), and any person owned or controlled by, or acting for or on behalf of, the Government of Venezuela.
Sec. 4. The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including promulgating rules and regulations, and to employ all powers granted to the President by IEEPA as may be necessary to implement this order. The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions to other officers and executive departments and agencies of the United States Government. All agencies of the United States Government shall take all appropriate measures within their authority to carry out the provisions of this order.
Sec. 5. For those persons whose property and interests in property are affected by this order who might have a constitutional presence in the United States, I find that because of the ability to transfer funds or other assets instantaneously, prior notice to such persons of measures taken pursuant to this order would render those measures ineffectual. I therefore determine that for these measures to be effective in addressing the national emergency declared in Executive Order 13692, there need be no prior notice given for implementation of this order.
Sec. 6. This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
Sec. 7. This order is effective at 12:15 p.m. eastern daylight time on March 19, 2018.
— By Blockpass CEO, Adam Vaziri.