Silke Noa Elrifai talks 2019 being the year of the DAO, creating cohesive crypto legislation in nation states, and the meaning of practicing jurisdictional arbitrage
Silke Noa Elrifai is a transnational lawyer and mathematician. She is the GC of Gnosis Group, a leading blockchain venture building decentralized infrastructure on the Ethereum Blockchain. She read law at City University London and Stanford Law School and mathematics and economics at the London School of Economics.
How did you get into the blockchain space? What keeps you here?
I started working for Gnosis about 10 months ago. My entrance into the blockchain space was actually more of an accident. In 2014 I was working at an American law firm in London, which was retained to represent the Japanese trustee in the Mt. Gox insolvency proceedings. I had heard a little bit about Bitcoin before then, but the insolvency proceedings really spurred my interest in the field. I continued to work in international dispute resolution and financial regulation for the next few years, and eventually realized that I wanted to do further research in blockchain law. I ended up attending a blockchain law conference here in Berlin, which is where I met the COO of Gnosis, joined Gnosis, and grew into the role of General Counsel, CLO of Gnosis.
What does Gnosis do?
Gnosis is very focused on creating essential infrastructure on the Ethereum blockchain. You might know Gnosis through our prediction market protocols, which have been our core product. However, what we’ve quickly realized is that a lot of the infrastructure that makes prediction markets successful just doesn’t exist. What you need is a platform to trade conditional tokens– tokens that make the outcome of any future event tradable. We couldn’t find an adequate platform, so we built a trading protocol, called the DutchX. We also have a multisig wallet which was originally created by the founders of Gnosis in order to be able to hold money for token sales. Since then we have developed it further into the Gnosis Safe, so that anyone can conveniently and securely store ERC 20 tokens, ETH, and conditional tokens in a fully on-chain, self-custodial wallet. To summarize, you create tokens and outcomes using our prediction market platform, trade those tokens on the DutchX, and store them in the Gnosis Safe. At the moment, control over the DutchX is being turned over to a DAO.
Could you tell us a little more about the DutchX being turned into a DAO?
The DAO (Decentralized/Distributed Autonomous Organization) is called the dxDAO. It was developed jointly by Gnosis and DAOstack. After a time period where participants may gain voting rights in the dxDAO, those participants will govern the trading protocol. For example, this could include updating the dxDAO smart contracts, changing the fee structure, whitelisting of tokens, incentivizing stakeholders’ marketing efforts, or asking for security audits — it’s quite open-ended and up to the participants. The dxDAO should be seen as a long-term organism, which will run itself and strategize for itself through participants, proposers, and other actors. We consider 2019 the year of the DAO.
What does being the Chief Legal Officer of Gnosis entail? What unique legal challenges does Gnosis face in relation to forming dxDAO?
In relation to DAOs, I try to help emergent DAO jurisdiction connect with nation state laws. A DAO isn’t a an organization form that’s recognized by many jurisdictions. Although there have been some attempts, for example in Malta, to integrate DAOs in the legal framework, at this stage most US states and European jurisdictions don’t legally recognize DAOs. This isn’t to say that they are illegal. They are “alegal”; they challenge the current framework and concepts of law. In a DAO participation is fluid (meaning that participants can join and leave at their convenience) and pseudonymous, which is an obstacle for regulators. Currently DAOs essentially have no legal personality; a member of the DAO may have a legal personality, but not the organism itself. For example, I recently attended a meeting for the formation of the International Association for Trusted Blockchain Applications at the European Commission in Brussels, and currently DAOs cannot join as members, since standard corporate law and legal structures just don’t recognize them. On-chain DAOs can govern, but in the real world that isn’t the case yet. The problem is that laws are behind in terms of what technology is already able to do, and the frontier is being pushed by various actors right now. It’s up to regulators to find a solution of how to deal with the emergence of DAOs. My role in this regard is to navigate constantly changing regulatory waters, and ensure that projects comply with regulatory requirements in order to minimize risk for anyone who gets involved.
You mentioned attending a meeting of the International Association for Trusted Blockchain Applications (INATBA). What is INATBA?
It’s an international association whose creation is being facilitated by the European Commission. Its goal is to present the interest of the blockchain community and, importantly, also allow the blockchain community to interact with regulators. So it’s a multi-stakeholder organization for those with a vested interest in blockchain and DLT that aims to foster trust and innovation in the blockchain space, advance global regulatory convergence, and essentially influence regulators in the right way. Regulators also want to learn and understand the perspectives of those in the space.
Is INATBA helping to create unified European regulation for blockchain technology?
I do think that on the European level attitudes and regulation towards blockchain technology is slowly becoming harmonized. There haven’t been many states that have passed far reaching crypto regulation, since regulators are very wary of stifling innovation. With organizations like INATBA I do hope to see more harmonization and more technical sophistication and differentiation being addressed in relation to issues like Anti-Money Laundering on the European level. For example, there is a massive difference between custodial and self-custodial wallets, and that difference needs to be considered by regulators. Long term, I think it would be much better to have one international stance on blockchain/virtual currency regulation, some sort of International Blockchain Law, but that’s not going to happen in the short term.
With organisms like DAOs, blockchain technology, and cryptocurrencies that don’t fit neatly in existing regulation, what efforts are being taken to draft new legislation?
Every nation state usually drafts their own legislation, and there isn’t any one common standard right now worldwide. Some say that small nation states (for example Gibraltar, Malta, Switzerland) are on the forefront of regulation, since they are able to pass legislation quickly. Bigger states usually take longer to get a bill through Parliament or to make amendments to existing regulation. The problem is that technology changes rapidly, and unfortunately (or maybe fortunately depending on how you see it) the law doesn’t keep up with it. There have been regulatory interventions that stifled innovation in the space, for example in New York they introduced the BitLicense years ago. Many projects move to Switzerland, because for a lot of blockchain companies Switzerland is more hospitable than other jurisdictions. Even though each nation state has its own laws, I’m hopeful that there’s going to be standardization and eventually some better adaptation to the “unterritoriality” of the blockchain space.
What jurisdictions are currently the most friendly towards cryptocurrencies?
It’s hard to generalize, since some jurisdictions are better for some aspects than others. However, Switzerland, Liechtenstein, Malta, Gibraltar– these nation states have been on the forefront in legislation and “blockchain hospitality”. A lot of companies who develop in Silicon Valley or Palo Alto are incorporated in Gibraltar, or in Switzerland. Zug is a small city in Switzerland that’s known as the Crypto Valley of the world. We call this jurisdictional arbitrage, where blockchain ventures choose their jurisdictions that are most hospitable to their specific project.
You authored the UAE chapter for the Virtual Currency Regulation Review. Tell us more about the regulatory climate there.
Firstly, it’s important to note that the United Arab Emirates are divided into several Emirates and that the entire UAE is very technologically advanced. Since the UAE is split into Emirates with a more vertical and centralised power structure, not liberal democracies, ironically, legislation may be quicker to pass. There are also some very unique free zones; one is the Abu Dhabi Global Market that has fully regulated crypto assets. There is also the Dubai International Financial Centre, which is planning to put its court system onto a blockchain. The UAE also greatly excels in marketing their efforts in the field of blockchain technology. In this respect the UAE can become a notable player in the field.
What can people in the blockchain community do to have their voices heard by regulators?
Speak to regulators. Do lobbying work. Make your voice heard. Regulators are catching up with technology and most of them are very open to speaking with projects about regulatory issues.
Blockchain hasn’t had a healthy relationship with government regulation. If you look at the origin of cryptocurrencies, which lies in the cypherpunk movement, their ethos is against any regulatory measures. Of course there are various players in the field who are proponents of no regulation whatsoever, but to be pragmatic or just realistic it’s important to understand that eventually regulation will happen. I think that the majority of the space realizes this. The law is going to catch up, so it’s really important to foster collaboration and dialogue between stakeholders in the blockchain space and regulators.
What does the process of creating good regulation look like to you?
It’s pretty difficult to define. I think that good regulation is created by speaking to the players in the field and the ecosystem. It is crucial that regulators understand blockchain technology and the space’s needs, and players in the blockchain space understand the regulators and their needs, and together they try to find a compromise. It has a lot to do with collaboration.
Is collaboration currently happening in the space?
Yes. At a European level there are a lot of discussions about blockchain, and there are national consultations in many countries globally. In Germany, the government has just launched an open consultation with players in the ecosystem regarding their blockchain strategy and this should help align the government’s and regulators’ plans with the interests of the blockchain space.
To what extent are women a part of creating regulation in the blockchain space right now?
I think women are more represented on the legal side than on the technological side of blockchain. There are many women who make a difference in the space as regulators and lawyers. These women are amazing, strong, and totally okay with being labelled “nasty women”.
How can people with legal backgrounds get into blockchain law?
In the US and to some level also in the UK, oftentimes people study something technical in their undergrad, such as computer science or mathematics, and then go to law school. These kinds of people have the technical skill set needed to be a lawyer in the tech field, including blockchain. I did mathematics and economics in my undergrad, so I feel it was easier for me to get into blockchain law.
Of course this doesn’t mean that people with other backgrounds cannot get into blockchain law. I think it’s a very open ecosystem, so if you’re interested in joining you can start going to meetups, read up on different legal issues, and try to publish. On the legal side of things, if you’re an undergraduate you can do internships at blockchain organizations, join projects, or start your own.
One of the best things about this space is the openness. The blockchain ecosystem grew out of the open source software movement, which makes the ecosystem inherently non-competitive and collaborative. Often the culture is such that people, projects, and companies are able to work together even if they would be considered competitors by bystanders.
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