{"id":557,"date":"2024-08-23T15:35:43","date_gmt":"2024-08-23T15:35:43","guid":{"rendered":"https:\/\/mycryptomania.com\/?p=557"},"modified":"2024-08-23T15:35:43","modified_gmt":"2024-08-23T15:35:43","slug":"web3-regulation-talks-with-icon-partners-vision-challenges-and-legal-guidance-part-2","status":"publish","type":"post","link":"https:\/\/mycryptomania.com\/?p=557","title":{"rendered":"Web3 Regulation Talks with ICON.PARTNERS: Vision, Challenges, and Legal Guidance [Part 2]"},"content":{"rendered":"

At Dexola<\/a>\u200a\u2014\u200aan advanced Web3 software development company\u200a\u2014\u200awe are strongly dedicated to push the boundaries of technological innovation. Meanwhile, we understand the crucial need to balance innovation with legal compliance.<\/p>\n

For this reason, we believe that our strategic partnership with ICON.PARTNERS<\/a>, a leading international law firm that specializes in Web3 regulations, will help us provide our clients with even more complex and legally revised technical solutions.<\/p>\n

To explore the legal landscape and difficulties faced by the emerging tech industry, we\u2019ve interviewed leading experts from ICON.PARTNERS:<\/p>\n

Viacheslav Ustimenko<\/a>, CEO and co-founder;Vladyslav Udianskyi<\/a>, a senior lawyer specializing in blockchain and\u00a0fintech;Oleksii Los<\/a>, a senior lawyer focused on Web3 & AI technologies.<\/p>\n

The conversation turned out to be very concentrated and extremely interesting. We\u2019re publishing the whole interview in two parts under the general title \u201cWeb3 Regulation Talks with ICON.PARTNERS.\u201d<\/p>\n

In part 1, Alex Stupakov<\/a>, Dexola\u2019s delivery director, speaks with experienced lawyers about the fundamental principles of Web3, the typical legal challenges encountered by startups, the complexities of tokenomics, and the risks associated with wine tokenization as a real-world asset.<\/p>\n

The complete version of the first part is available here<\/a>.<\/p>\n

In the latter half of the interview, you\u2019ll uncover some surprising insights about the growing regulatory challenges in the crypto industry, especially around stablecoins and real estate tokenization.<\/p>\n

The conversation dives into how ICON.PARTNERS navigates complex legal landscapes, the necessity of regulation to protect investors, and the delicate balance between innovation and compliance in the blockchain space.<\/p>\n

We hope you find it engaging!<\/p>\n

Disclaimer: This interview does not provide legal or financial advice. The information presented is for general informational purposes only. We are not responsible for any actions taken based on the content of this interview. Readers should consult with a professional before making any decisions.<\/p>\n

Alex: What are the primary challenges facing the crypto industry today? How does ICON.PARTNERS contribute to resolving them?<\/strong><\/p>\n

Vlad:<\/strong> The main issues include regulatory uncertainty, fraud risks, and compliance complexity. ICON.PARTNERS helps address these issues by providing legal consultations, support with company registration, assistance in developing tokenomics, and compliance with the legislation of various jurisdictions.<\/p>\n

We also help protect intellectual property and resolve disputes, which is particularly important for startups.<\/p>\n

Oleksii: <\/strong>Especially in blockchain-related companies, we also pay attention to the legal aspects of smart contracts to verify that they comply with legal requirements. This is particularly important for DeFi projects, where the lack of regulation can lead to serious consequences.<\/p>\n

Slava:<\/strong> I would add that we often work with clients in forming their company and understanding all legal aspects at the early stage. This includes tokenomics auditing and helping in negotiations with regulators. We\u2019re particularly strong in dealing with regulators because we\u2019ve already built good relationships with many of\u00a0them.<\/p>\n

Alex: Given the options of the Baltics, the US, Texas, or offshore jurisdictions, where would you recommend registering the\u00a0company?<\/strong><\/p>\n

Vlad:<\/strong> We typically conduct a strategic assessment to identify the client\u2019s specific needs before recommending onshore or offshore incorporation. Historically, offshore jurisdictions were favorable for crypto projects due to regulatory flexibility compared to Europe\u2019s stricter approach to innovation.<\/p>\n

However, recent regulatory developments there have introduced greater legal certainty, potentially shifting this dynamic. At the same time, with legal certainty, new issues have arisen, as now MiCA Regulation requires most of the third-country companies to establish a presence in Europe, like offices, obtain authorization to serve EU residents, with some exceptions like reverse solicitation, conduct appropriate marketing campaigns and publish whitepaper.<\/p>\n

That\u2019s why ordinarily our strategic assessment includes the following business objectives: target market, geographical location of operations, tax benefits, ease of management, or legal certainty.<\/p>\n

Oleksii:<\/strong> Moreover, while offshore jurisdictions can offer tax advantages and flexibility, regulatory compliance remains vital. Considerations include data protection laws, since many data protection laws have extraterritorial reach, KYC\/AML requirements, as anonymity ideas do not absolve companies from obligations to meet those rules, and, crucially, securities regulations.<\/p>\n

In Europe, for example, considering the nature of the token being issued, the requirements are completely different. If it is qualified as a financial instrument (security token), the applicable regulation isn\u2019t MiCA but MiFID-2, necessitating a prospectus instead of a whitepaper.<\/p>\n

Moreover, offshore businesses shall remember that the Howey test does not apply uniformly across all jurisdictions, since each country has its own features regarding security\u00a0tokens.<\/p>\n

However, if the project aims to issue utility tokens without any promises of returns or profits, then offshore jurisdictions can be used with some considerations. For example, our approach always aims to balance short-term benefits with the company\u2019s long-term objectives, ensuring sustainable growth for the crypto\u00a0project.<\/p>\n

Alex: I understand, but let\u2019s break down a simple case: a crypto wallet. It doesn\u2019t issue any tokens; it\u2019s just a service platform. Does it matter where it\u2019s registered?<\/strong><\/p>\n

Vlad:<\/strong> The regulatory implications for a crypto wallet service platform can vary significantly depending on whether it\u2019s custodial or non-custodial, since custodial ones often fall under VASP regulations in many jurisdictions.<\/p>\n

For a non-custodial crypto wallet that\u2019s purely a service platform, the registration location may have less significance from a regulatory standpoint, as they\u2019re generally treated more like software companies. However, it\u2019s not entirely irrelevant, since the company\u2019s location can affect tax obligations and corporate governance.<\/p>\n

Oleksii:<\/strong> There are various concepts established in existing regulatory frameworks that apply to providers involved in cryptocurrency activities. In MICA, it\u2019s referred to as CASP\u200a\u2014\u200aCrypto-Asset Service Provider. In most jurisdictions, the term used is VASP\u200a\u2014\u200aVirtual Asset Service Provider.<\/p>\n

This mainly pertains to exchanges, specifically platforms that offer custodial services. These services include storing funds for users, handling transactions on their behalf, placing orders, and similar activities.<\/p>\n

These platforms are involved in currency exchange, including fiat-to-crypto and crypto-to-fiat transactions. Essentially, these off-ramp services deal directly with either the user\u2019s virtual assets, crypto assets, or fiat currency. Therefore, structuring the custodial service provider\u2019s business necessitates a more meticulous approach.<\/p>\n

On the other hand, if we\u2019re talking about a non-custodial crypto wallet, which is just software, there isn\u2019t a strong need to go offshore or create a complex corporate structure. However, such businesses can still take advantage of more favorable taxation, data protection obligations, and general business regulations, by opting for a more complex structuring.<\/p>\n

Alex: Yes, but what about the Tornado Cash case? They didn\u2019t hold any funds, but they were still heavily prosecuted.<\/strong><\/p>\n

Slava:<\/strong> Tornado Cash is not just a non-custodial wallet, but a decentralized mixer or tumbler service. Tornado Cash was labeled a \u201cmixer\u201d because it increased anonymity by mixing funds, making it hard to trace their origin. Such obscure of trace qualitatively differentiates Tornado Cash from a simple non-custodial software mentioned by my colleagues.<\/p>\n

Therefore, since Tornado Cash created additional value to its non-custodial service by mixing funds without clear oversight, such additional value attracted regulatory attention for allegedly facilitating money laundering.<\/p>\n

Vlad:<\/strong> That\u2019s why, this case doesn\u2019t mean all non-custodial wallet providers are at risk of similar prosecution. This case underscores the regulatory focus on functionality rather than custody status. While basic non-custodial wallet functions remain largely unregulated, any additional features that could be perceived as obscuring transaction trails may attract regulatory scrutiny.<\/p>\n

This is why mixers like Tornado Cash can face some troubles. Providers should carefully consider the implications of implementing privacy-enhancing features, even if they\u2019re optional. Moreover, KYC\/AML regulations still apply even to non-crypto service providers, causing them to have robust KYC\/AML procedures.<\/p>\n

Alex: Ok, I guess we\u2019ve covered that pretty well. Now let\u2019s talk about how you handle complex requests with uncertain outcomes. What principles guide you in these\u00a0cases?<\/strong><\/p>\n

Oleksii:<\/strong> Our approach is similar to the one you described in your work. We study the client\u2019s request and then inform them about potential challenges, existing practices, critical risks and propose solution.<\/p>\n

For instance, when tokenizing real estate, the process\u2019s complexity depends heavily on the approach. Directly tokenizing property is challenging due to absence of legal mechanisms to do it straightforward and already existing legal procedures on ownership transfer under civil\u00a0laws.<\/p>\n

The idea behind tokenization is to make illiquid assets like real estate liquid. However, this raises questions about how to allocate ownership shares, manage rights, and distribute rental income to token\u00a0holders.<\/p>\n

Vlad:<\/strong> In this situation, on one hand, smart contracts offer a powerful tool to automate and create agreements. On the other hand, they don\u2019t replace the need for traditional legal documentation. That is why, in such complex situations, we would find the solution, using the available legal options. And there are already some cases to back that\u00a0up.<\/p>\n

With the real estate tokenization, such can be structured to represent indirect ownership through tokenized shares in a corporation that holds the property. Such a corporate structure enables fractional ownership and enhanced liquidity, effectively simplifying access to traditionally illiquid\u00a0assets.<\/p>\n

Moreover, such projects have already safely existed in the U.S. Another example may be DAOs, even though many jurisdictions still don\u2019t recognize DAOs, we are able to arrange the entire structure and draft bylaws that way, which helped the community to reach the most decentralization.<\/p>\n

To sum up my idea, working with clients, we strive to provide them with the most comprehensive view of possible solutions for them to choose the best one from the business point of\u00a0view.<\/p>\n

Slava:<\/strong> On my part, I want to emphasize that we don\u2019t take risks when something isn\u2019t feasible. We never tell the client, \u201cMaybe we\u2019ll get lucky.\u201d That\u2019s not how we do business. If it\u2019s legally allowed, has been done before, falls within the current legal framework, and the client is ready to navigate the challenges and processes involved, we\u2019re fully prepared to support them every step of the\u00a0way.<\/p>\n

However, if we face something precarious, we will always try to mitigate those risks, use any available sandbox or get the opinion of regulators, so that even very innovative companies could launch their ideas and not be obstructed by the legal uncertainty.<\/p>\n

Alex: The American tokenization story sounds inspiring. How do such precedents impact the development of the legal framework?<\/strong><\/p>\n

Slava:<\/strong> Innovative projects are indeed impacting legal frameworks, particularly those in regulatory sandboxes. These initiatives are prompting regulators to address gray areas, but their influence remains limited, especially in real\u00a0estate.<\/p>\n

However, regarding the U.S. real estate tokenization, the impact remains questionable. Because, despite the lack of specific laws for real world asset tokenization, other legal frameworks, like civil and administrative laws, still\u00a0apply.<\/p>\n

For example, in Ukraine, transferring real estate requires a written contract and official registration, which can\u2019t be accomplished simply by transferring a token. In fact, tokenization creates some complex structures, but they do not actually transfer ownership of the property\u00a0itself.<\/p>\n

Vlad:<\/strong> I\u2019m totally with Slava on this. As seen with Marshall Islands\u2019 DAOs, demand for these structures has stimulated legal updates. However, real estate tokenization faces more significant hurdles.<\/p>\n

In reality, blockchain can sometimes be an unnecessary addition. While blockchain is intended to simplify and make processes more transparent, it may not be suitable for real estate tokenization. In today\u2019s context, with no algocracy, every transfer of that token would require a series of legal procedures to truly transfer ownership rights.<\/p>\n

Unlike with DAOs, it\u2019s unlikely that countries will completely overhaul their civil codes and property laws to accommodate real estate tokenization. The required investment and rework of existing frameworks are too substantial. Instead, we\u2019re likely to see gradual, targeted adjustments to legal interpretations and regulations as the technology evolves and proves its\u00a0value.<\/p>\n

Alex: So, are you saying that government institutions are hindering progress?<\/strong><\/p>\n

Oleksii:<\/strong> Not exactly. The state needs control measures, which is why we see lawsuits and regulations against major companies and exchanges like FTX and Binance. The state is interested in blockchain but not in letting the industry become a \u201cWild West\u201d where everyone does whatever they\u00a0want.<\/p>\n

Without regulation, the state loses its ability to protect citizens\u2019 interests. For instance, if someone profits from an ICO and later faces legal issues, they\u2019ll be dissatisfied. They want projects to thrive and make more money, but when a project fails or turns out to be a scam, they blame the government for not acting quickly\u00a0enough.<\/p>\n

Vlad:<\/strong> This creates a dilemma. On one hand, the crypto community advocates for decentralization and anonymity. On the other hand, when they lose money to scams, they demand investor protection.<\/p>\n

Therefore, regulation and control are necessary to protect participants\u2019 rights and interests. This is especially important with different types of tokens, like stablecoins, utility tokens, and payment tokens, which all require clear legal definitions and responsibilities.<\/p>\n

Alex: Oh yeah, stablecoins are starting to become a big\u00a0issue.<\/strong><\/p>\n

Slava:<\/strong> Indeed! One of the trends over the past two years has been increasing regulation around stablecoins, driven by incidents like LUNA and UST. These events were a wake-up call for regulators, highlighting the need for protective measures.<\/p>\n

Even for qualified investors, stablecoins tied to the dollar must have clearly defined reserves, such as cash or cash equivalents.<\/p>\n

Alex: Thank you for sharing your insights on this fascinating topic. This has been an incredibly informative discussion! I\u2019m sure our audience will find your expertise invaluable.<\/strong><\/p>\n

As we wrap up, I\u2019d like to express our sincere gratitude for your time, thanks for sharing your knowledge. Your insights helped us to understand the complexity of Web3 regulation. It provides our readers with a clearer understanding of the legal challenges and opportunities in this\u00a0space.<\/strong><\/p>\n

***<\/p>\n

To our followers, we hope this interview has been as enlightening for you as it has been for us. As we conclude our \u201cWeb3 Regulation Talks with ICON.PARTNERS,\u201d we extend our gratitude to the legal experts at ICON.PARTNERS<\/a> for sharing their invaluable expertise.<\/p>\n

We also want to thank our readers for joining us on this journey of exploration and knowledge. While this marks the end of our interview, the world of Web3 continues to evolve, and we encourage you to stay informed and\u00a0engaged.<\/p>\n

Web3 Regulation Talks with ICON.PARTNERS: Vision, Challenges, and Legal Guidance [Part 2]<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":"

At Dexola\u200a\u2014\u200aan advanced Web3 software development company\u200a\u2014\u200awe are strongly dedicated to push the boundaries of technological innovation. Meanwhile, we understand the crucial need to balance innovation with legal compliance. For this reason, we believe that our strategic partnership with ICON.PARTNERS, a leading international law firm that specializes in Web3 regulations, will help us provide our […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-557","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/557"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=557"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/557\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=557"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=557"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=557"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}