Trustless Technology in the Trust model between Civil Law and Common Law🔢

A brief analysis of the new San Marino Blockchain

Statue of Liberty, located in Liberty Square, San Marino


The job of stones quarryman is united to that of the miner. But while the miner extracts without paying much attention to the details, the stonemason, combining practical with artistic skills, chooses the stones, brings the blocks to light and works them.

This was the craft of the founder of the Republic of San Marino.¹ The Croatian miner and stonemason who emigrated to Italy at the end of the 3rd century a.C. to build — between Rimini and Monte Titano — fortified walls; ultimately, stone blocks chained together.

But the symbolic assonances that lead the Blockchain to San Marino — almost by predestination, and now also by delegated decree n. 37 of 27 February 2019 — go beyond the curious resemblance of the San Marino Moto GP circuit to a mining pick or the job of the small Republic’s founder before being sanctified.

Moto World Circuit of Misano — San Marino

In fact, before his death, Marinus pronounced the phrase “Relinquo vos liberos ab utroque homine,” stating that his work would leave his fellow citizens free from both then reigning powers, the Emperor and the Pope. History or legend, this push towards freedom is an integral part of the independence of San Marino and, also — as I am only recently learning — of its original legal system: a structure of ancient customs of common law, set in a civil law order.

A mix of legal systems — elsewhere opposed for centuries — that makes San Marino an almost natural bridge between countries of civil law and common law tradition. Perhaps also, just the third way — that of mediation — in which the Blockchain implicit legal architecture could stop that unproductive duel of supremacy between Code of Law and Code as Law,² we have witnessed for a decade since Satoshi Nakamoto published his Bitcoin white paper.

Statue of Saint Marinus deacon, Basilica of San Marino (Adamo Tadolini, 1788–1868)

Legal Suitability of San Marino towards the Blockchain

The history of the Republic of San Marino has not known the nineteenth-century experience of the written codification of the law.

For this reason, its legal system preserves a system of sources of law which, in a way that is complementary to the ius scriptum of written law, is based on customs and common law.³ That system inspired by the ius Gentium which escaped the codification of Justinian to apply to ordinary people (not citizens of the Roman Empire). And that — by the personal and not yet territorial nature of the law — came developed in those orders such as England where Norman was spoken instead of Latin, and where they gave birth to the Great Charter of Freedoms.

Historically, therefore, San Marino, like all systems inspired by British influence, has a regulatory framework that respects and integrates the autonomy of individuals and their contractual freedom. A system more concentrated on Principia than on written Regulae. More prone to remedies than to dogmatic reflections on rights,⁴ and more responsive to the individual needs of doing business and ius dare than to those of ius dicere proper to civil law systems. Where, before understanding the negotiation activity of people and the freedom that moves it, you have to go through complicated abstractions and elaborate categories, types, and sub-types, to then perhaps give some useful answers.⁵

San Marino flag

The San Marino common law system, which has made Libertas its national flag, is therefore consistent with the Blockchain. Born from the ideological structure of the libertarian environments in which Bitcoin arose. To which must be given the merit of having reacted to the Crisis of 2008 by supporting the intensive cryptography use as part of the political and social change that the world necessitated, and by disengaging the concept of the “ledger” from the inseparable link with the authority that has always been the guarantor of the registers weight.

ICO / STO between common law and civil law: the case of San Marino

The ongoing confrontation (also) about the Blockchain between the different civil law and common law traditions is visible in the crypto-friendly race taken in many countries, that on ICO/STO’s has now become regulatory arbitrage.

That offers a vivid example of how common law and civil law countries, although united by the goal of attracting the crypto-industry, react differently to the new forms of social and economic coordination enabled by the Blockchain, and demonstrates different concrete effectiveness, and a varying degree of compatibility with the legal structure inherent in the Blockchain itself. More marked in systems that refer to the common law as is evident from the case of the ICO/STO’s issue regulation issued on February 27, 2019, by the small State of San Marino.

Guaita Fortress — San Marino (ph Marco Guidi)
Concrete approach

As mentioned, San Marino is still a part of the common law global legal system. So in San Marino, it does not necessarily have to write, especially in normative texts, what is pleonastic. Nor should we give an account, with explicit and hyper-detailed references, of phenomenologies of private relationships, which the ius commune, in practice, will help to regulate. And this substantialist approach, shared by all common law systems, is not a question that is limited to the form of expression of the rules.

Dovima with the elephants (ph: Richard Avedon 1950)

So, anyone who compares the eight pages of the San Marino d.d. no. 37/2019 of 27 February 2019, with over 150 pages of the Malta provisions (Virtual Financial Assets Act — VFA Act, Innovative Technological Arrangement and Services Act-ITAS Act, and Malta Digital Innovation Authority Act— MDIA Act), will be able to confirm the above, immediately savoring the difference between a dry style, that of San Marino, compared to another, basically pachydermic, in front of the same problem: regulating the emissions of utility and security Blockchain tokens to finance businesses and startups.

But, as already mentioned, this is not just a formal issue. The rigidity of the extreme detail into which the Maltese legislator entered, led him, in the so compulsive effort to write everything, to unnecessarily duplicate the European system on financial instruments.

The latter established — not only by Prospectus EU Regulation no. 2017/1129, also recalled from San Marino precisely because it does not belong to the EU, unlike Malta which has been part of it since 2004. But even from that legislative apparatus (deriving inter alia from the MiFID II, UCITS, AIFM and Market Abuse Regulation), that Malta — unlike what was avoided by San Marino or even from Gibraltar,⁶ just to mention another country of common law but (still) belonging to the EU — it would have been better not to reproduce, regardless from EU membership.

In fact, the applicability of the European security regulations to Blockchain investment tokens is more theoretical than practical. As evidenced by the token issues to which, for commonly used negotiation practices, transferability and negotiability attributes are eliminated by contract in order not to fall within the legal definitions of securities; and that prevent transfers in breach with the smart contract which automatically applies the lock-up and identifies the first buyer, unable to resell, through the public key of his Blockchain address.⁷

Blockchain entities limitation

Moreover, genuinely far from any abstractness of extensive and detailed rules, in San Marino, the importance of limiting the use of digital token emissions to Blockchain entities alone has not escaped. That is to the subjects operating in the industries that use the Blockchain and who intend to finance with the ICO/STO’s the construction of services enabled by a real use of Blockchain itself, thus contributing to the development of the market.

A detail, the latter, of the utmost importance that the Maltese legislator of the Virtual Financial Assets Act — in its long-winded preceptive system — has completely neglected, by identifying the token issuer, without distinction, as any legal entity that proposes to issue virtual financial assets. Thus legitimizing, indirectly, all those token issues without connection to the Blockchain technology, if not for the methods of creating and distributing the tokens themselves, and opening the ICO/STO’s way also to completely Blockchain, unrelated companies. Companies that, not producing goods or services with the use of the Blockchain, will be able to make use of the ICO/STO’s to carry out operations of substantial every man’s IPO’ s, with token emissions, which have no chance — using the concepts of Jose Maria Macedo, one of the essential token economists currently on the scene — of capturing the value of the implicitly underlying assets,⁸ the business platform and project based on a real use of the Blockchain protocols.

New legal model

Finally, always in line with the common law, San Marino with the new bill 37/2019 — fortunately, not very detailed — offers the possibility to Blockchain operators to establish Trusts or to use the Trusts created elsewhere.

And this, evaluating the practice covered up to now, represents a real legal model that is easily viable, proposed by a State, to structure an ICO/STO issue. An agile and coherent operating standard, alternative to the establishment of Swiss Foundations (think of Ethereum, Bancor, Tezos, and others), in my opinion, much more useful to a project based on the trustless-trust technology beyond the easy word games, compared to that offered by the Crypto-Valley through a typical civil law set-up model.

Trust vs. Foundation model for ICO / STO

As known, in the legal model of an ICO, from the time this financing method was established between 2016 and 2017, the most felt needs were (are) those of protecting the developer team from the outcomes of the Blockchain project to be funded and those of safeguarding, in some way, the token holder, that is the investors.

The construction of a dual model has met these needs. It provides for the establishment of an operating company, owner of the platform and protocol on which to configure Blockchain products and services, and of another legal entity, non-operational, with which to create a separation between the equity of the project (that of the operating company) and the liquidity offered by investors with the purchase of tokens.

The legal structure of an ICO based on the Foundation

But this working scheme, above all that which implies the establishment of a foundation under Swiss law, as mentioned in an interview with Reuters of Luka Mueller, “is a very old, inflexible, stupid model.”

In fact, as emerges from the complex Swiss civil law system (Schweizerischen Zivilgesetzbuch-ZGB, the Legislative Code and the specific Code of Foundations, Swiss Foundation Code-SFC), the Foundation is expensive, involves an immediate allocation of financial resources ( 50,000 CHF), must be registered in public registers, has a very articulated level of governance that means (even) additional costs for auditing, has multiple levels of control (municipal, cantonal and federal); and, if it operates internationally — as it almost always happens in the cases of ICO/STO’s — it is subject to the supervision of the Federal Supervisory Board for Foundations — AVF which, for each activity to which the Foundations are obliged, has a somewhat salty tariffs.

Finally, the Foundation has the enormous limitation — common to all the legal systems that provide it, and not only Switzerland — of not being able to be used in any way for commercial activities although it has legal personality.

And this is why the stupidity of the ICO/STO legal model based on the Foundation emerges. But that, in my opinion, it is only the low propensity that civil law countries (such as Switzerland) have compared to the private legal structure of the Blockchain, the Code as Law that is at the base of whatever happens on-chain. And it is no coincidence that almost all the civil law countries are trust-free and implement the model of the Foundation, limiting themselves to importing the legal model of the Trust of the common law countries, where this legal model is native.

Suffice it to say that the Foundation has no shareholders and governance must be independent of the underlying companies, such as the operating corps that develop protocols and manage the Blockchain platform underlying an ICO / STO issue. Consequently, with the Foundation — although it is currently the most used model by practice — the biggest problem of the so-called token model, described here by Jose Maria Macedo, is aggravated.

The ICO/STO legal model based on the Trust — which San Marino, with a completely original degree of innovation, clearly states — , on the other hand, does not involve this fundamental division between the equity of a project and the liquidity brought by the token purchases. But instead, it leads to greater sharing of the two levels of capital and a greater possibility of establishing lasting relationships with investors.

First of all, the Trust, as a general structure, does not determine the attribution of a legal personality, remaining a mere contractual fact between private individuals. From that point, it means that there is no departure from the operating company that owns the platform and develops the Blockchain protocol, compared to other legal entities. Nor do we propose prohibitive set-up and management costs such as those arising from Foundations.

Secondly, with a Trust, the problematic separation between shareholders and investors for the token model can be eliminated and reduced. And this because the operating company, which develops the project and the protocol and launches the ICO/STO, besides being able to be the settlor that binds the liquidity obtained from the tokens sale, could be the trustee himself who will manage it in a manner consistent with the real needs of the project. Especially in San Marino where the so-called self-declared trusts are legitimate and do not require any form of legal formality or additional precaution.

And finally, because with the establishment of a Trust, fully usable also for commercial activity, there would be no need even of an upstream operating company establishment. Or there would be the possibility of subsequently transferring in Trust the operating company shares itself. With the undoubted advantage of not creating, within the same ICO/STO scheme, classes of subjects with opposing interests; and to divide between investors and project creators — by which often gives the initial equity — the results of the enterprise, with all the appropriate gradations made possible by the extreme flexibility of the Trust-deed, moreover, fully able to incorporate — in the forms and with the typical strength of a contract — the whole white paper and the regulation to manage the issues of the tokens and the investors rights.


The Republic of San Marino has decided, for some time, to arrive at a new and more transparent economic-financial system. For years, in fact, it is no longer a tax haven and measures have been introduced to eliminate legal instruments that favored properties occultation.⁹ And the new ICO/STO decree confirms this attitude. Since having made available, the legal model of the Trust for ICO/STO’s represents, vividly, the will of the small State to make available to the entire Blockchain sector one of the best elaborated and applied legal instruments of all its order.¹⁰

But the civil law also converges in San Marino as said. And the resulting unique of legal systems could allow the small Republic, even in practice, to provide the right answers. Answers, the latter, which must serve to respect the libertarian values on which the Blockchain protocols are based, and to guide gently and in more useful directions the thrusts of the complicated Blockchain universe towards a senseless technological totalitarianism, which tends to avoid any conventional legal system through exclusively private, global and technocratic regulation methods for which legal protection does not work.¹¹

To this end, moreover, San Marino will use the well-known mechanism of direct and monetizable economic incentives, so dear to the Blockchain environments, represented, in the present case, by the complete exemption fiscal with the general income tax on income realized in the San Marino area through ICO / STO (see article 11, paragraph 3, d.d. no. 37/2019), and from that minimum of codification and state recognition necessary for every economic initiative to have legal certainty and quality standards required by the markets.

[1] See 2018 San Marino Country Profile by KPMG.

[2] K. YEUNG, Regulation by Blockchain: The Emerging Battle for Supremacy between the Code of Law and Code as Law, 2019, Modern Law Review, Vol. 82, Issue 2.

[3] A. VICARI writes, in “Compatibility with the common law”: “to solve a juridical question governed by San Marino law it is necessary to l) apply the Statute and the subsequent laws that reform it, the so-called “reformationes”; 2) where neither the first nor the second contain provisions on the subject, apply the “commendable local customs”; 3) where even these do not contain suitable provisions, apply the common law, that is, the right which was formed and developed on the basis of Roman law (not therefore properly the Roman law of Justinian), of canon law and custom, in the more civilized States of the European continent before the nineteenth-century codifications ”.

[4] V. PIERFELICI, in The Court for the Trust and fiduciary relations in San Marino, 2015 (in Italian).

[5] A. VICARI, in The “title” in the re-reading of the trust expressly established and in the construction of the contract of trust entrustment, 2016 (in Italian).

[6] Gibraltar is an overseas territory of England, belonging to the EU at least until, and if, Brexit manages to find its legal effects. Gibraltar, with the Financial Services (Distributed Ledger Technology Providers) Regulations, in force since January 2018, intended to regulate with only nine principles all the DLT providers expressly not covered by any other type of regulation, in order not to duplicate rules already in force. About the ICO/STO’s, on the other hand, based on the deemed unique nature of the token issues on Blockchain not concerning the European security legal framework, Gibraltar announced a special regulation through the public consultation on the document, entitled Token Regulation.

[7] P. Hacke — C. THOMALE, in Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law, pp. 21 and 22.

[8] J.M. MACEDO, Single Biggest Problem with Token Models (Part I), 2018.

[9] San Marino Decrees 22 September 2009 n. 136 and 11 November 2009 n. 154.

[10] San Marino Acts no. 42 and 43 of 10 March 2010.

[11] Think about to what writes V. BUTERIN, in Daos, dacs, das and more: An incomplete terminology guide, 2014, about the smart properties “…. may or may not make use of the legal system for some protection of its physical property, but even there such usage is secondary”.