A PROPOSAL FOR DEFI AND THE KEY LEGAL CONSIDERATIONS
What is DeFi?
The decentralised finance (or DeFi) phenomenon is one of the most exciting new trends in the blockchain sector because it could “democratize” financial products, create liquidity for cryptoassets, and expand the use cases for blockchain technology.
DeFi refers to decentralized applications (dApps) that operate through smart contracts on a blockchain and provide cryptoasset related financial services, solutions, or products. DeFi dApps can be used for lending and borrowing, insurance, trading in synthetic assets, prediction markets, and more.
Important legal considerations
In view of the borderless nature of blockchain technology, the jurisdictional scope of the applicable laws to dApps may be global. The implementation of technical functionality within dApps may, however, be possible to impose jurisdictional restrictions in order to, for instance, block IP addresses from certain countries from accessing the service. Effectiveness of such measures (particularly in the context of regulatory/security issues) is likely to depend on the specific local legislation in question. Moreover, since DeFi (and smart contracts and blockchains in general) are still nascent and innovative, applications and products are unlikely to neatly fall within existing legal and regulatory frameworks.
In all DeFi projects, the following key legal risk areas are likely to be relevant:
• Incorporating legal classifications and enforcement mechanisms — It is important for users to understand the legal nature of cryptoassets, the legal enforceability of smart contracts, and the parties to which legal liability attaches, so that adequate legal protection can be sought and liability mitigated.
• Data privacy — Identification of the responsible party for compliance with data protection laws in respect of the collection and storage of personal information as well as (to the extent feasible in light of the inherent challenges introduced by blockchain technology) ensuring compliance with applicable data privacy laws.
• Intellectual property — Taking steps to ensure that dApps are not infringing on the intellectual property rights of others, and potentially entrenching value in dApps through the protection of intellectual property rights in them.
Dispute resolution — It is important for users and developers of DeFi dApps to be aware of the complexities that may arise when resolving disputes which may arise between them.
• Consumer protection — We must consider the potential implications of the potential application of consumer rights laws, the scope of which will vary depending on the jurisdiction in which the dApp is used.
• Securities law and regulatory frameworks — An understanding of the applicable regulatory frameworks and securities laws that may apply to any digital token issued as part of the operation of a dApp, the transactions taking place relating to cryptoassets via a dApp, as well as the nature of activities being undertaken by means of the dApp, is essential.
Follow us on Facebook, Twitter, Instagram ,and Linkedin to stay up to date with all the latest news or visit our website.
TEAM ALPEX Global
