Does Intellectual Property Exist in DeFi?
One of the profound realizations I’ve had in crypto is that it’s not an industry, but it’s a movement. Crypto transcends all industries and walks of life. It’s one of the greatest parts of the crypto journey; the communities you discover within. I for one, have a background in music, and have fought vehemently my entire career for what’s rightfully mine from a copyright and legal standpoint. Copyright is a form of intellectual property, and music is a great example for why intellectual property is so important. If you create a song using someone else’s work and monetize it, the original creator is credited and financially compensated for the use of that work in a derivative version. It’s known as sampling, and it’s an industry standard concept.
As my journey into crypto ventures onward and into decentralized finance, or DeFi in particular, I’ve learned that open-source code is seemingly the status quo to building any decentralized application, or dApp. One main rationale for this is security. Having open-source code that is transparent and used and tested by the community at large ensures no bugs exist in the code, and allows developers to more easily create and build trustworthy projects. However in the wake of using open-source code for new mediums of creative expression and not to mention lots of profitability, it begs the question: does intellectual property exist in DeFi?
Intellectual property rights as the World Trade Organization defines it are rights given to persons over the creation of their minds. We know in the eyes of United States law that computer code, which is deemed a language, is considered free speech and creative expression.
Let’s look at UniSwap as an example of a project in DeFi that uses open-source code. Uniswap is a premier Automated Market Maker (AMM) in the DeFi space. Its 2nd generation version, Uniswap v2, went on to be forked, or copied, across the entire DeFi landscape countless times and is one of the most popular AMM forks to this day. This is all made possible because the code that creates Uniswap v2 is open-source — meaning it’s legally free to use and open to see by anyone on GitHub. Consequently, copycat competitors across all blockchains were thus able to create their own lookalike DeFi protocols using the original Uniswap v2 code, which in turn perpetually threatens Uniswap’s very own liquidity as a functioning AMM.
In March 2021, Uniswap introduced an upgrade to their protocol and launched Uniswap v3. This time around, they introduced a brand new policy for the first time: a need for a time-delayed business license in order to use their v3 AMM source code. You are currently going to have to wait 2 years until you can have the right to use their updated code, as per their business license agreement. This is quite a stark contrast to the open-source ethos in DeFi of the past, and there’s a sense that in the future, DeFi may be leaning away from the complete open-source code way of doing things. Here is an excerpt from Uniswap’s website explaining their position on the new business license:
“We strongly believe decentralized financial infrastructure should ultimately be free, open-source software. At the same time, we think the Uniswap community should be the first to build an ecosystem around the Uniswap v3 Core codebase.
With this in mind, Uniswap v3 Core will launch under the Business Source License 1.1 — effectively a time-delayed GPL-2.0-or-later license. The license limits use of the v3 source code in a commercial or production setting for up to two years, at which point it will convert to a GPL license into perpetuity.”
Uniswap is changing their tone on how they are moving forward in the DeFi space, and who is allowed to use their code and why. V1 was Uniswap’s proof of concept. V2 quickly became the de facto industry leading AMM that became copied all across the DeFi space and virtually onto every blockchain. Now, at a time when open-source code has become ubiquitous for web3 creators and developers, Uniswap v3 is telling the industry, “Hey, we made this. This is ours, and we want to use it first. Then we will let you use it and profit from it.” Even today, dApp’s are still being built on top of Uniswap’s v2 code because they don’t have a better choice. But Uniswap v3 code is fully visible for all to see still, you’re just not allowed to copy it or they will sue you. That’s the power of intellectual property.
Not all code in DeFi is open-source however. Even projects that are built on top of open-source code or using Uniswap v2’s code will build proprietary code that is oftentimes hidden, and is considered vital, or the “secret sauce” to a project’s success. If that code is ever hacked, exploited, or revealed, it would cause tremendous harm to the livelihood of the project’s future success for the sake of its competitors to be able to directly clone the software. Hence the importance of the legal protection of intellectual property.
Advocates for open-source code will argue that smart contract code is not intended to be hidden from the public primarily for security concerns. Smart contract code handles your money, without any central authority to come and fix errors if they occur. At the end of the day, we are building peer-to-peer trustless verifiable systems. We are essentially forced to put enormous trust in these developers, many of whom are anonymous or pseudonymous, and they have at times demonstrated that they are not perfect and have left very trivial bugs in their code in the past. So it is dangerous to be utilizing such code as we have very limited tools to learn how this financial software functions. Arguably, this is exactly why Uniswap let their code be forked over in the first place. As the industry matures, and certain open-source code goes on to become prominent infrastructure within the space, it feels like we may be nearing an inflection point where the industry will have to decide what’s best moving forward and how important intellectual property will be considered.