Blockchain Policy Simplified - Sylvia Sanchez | Ava Labs

Hi everybody. I am so excited to be with you today. As he mentioned, I am Sylvia Sanchez. I am originally a Colombian economist that fell in love with blockchain and then I realized that there was this big gap in education and that's why I went down this rabbit hole and now I work as project manager at Avalabs and more specifically on this owl explains project which yes is originally intended for policy makers for regulators to better understand web 3 blockchain because at the end of the day they're writing the rules but if they don't understand it we risk having some rules that are not so helpful for our ecosystem. So our mantra is more hoot, less hype.

And you will see why in a bit. But before I get into the rest of the presentation, I'd like to clarify that none of this is intended as financial or legal advice. This is just forformational and educational purposes only. So just the usual disclaimer. And with that, I'd like to ask a general question to those of you that are working in the crypto industry.

When you tell people what you do, whether you are a developer, uh, marketing, whatever it is, maybe, I don't know about you, have you had some weird reactions from people outside that they're like, "Oh, are you a Bitcoin trader? Are you losing money on memecoins or as they're called shitcoins or whatever?" I don't know. But for me because at the beginning I was more on like this central banking side. So when I told some family members, some colleagues like, "Yeah, I am joining this blockchain developer company."

They were like, "You're crazy. You're gonna, you know, they thought it was like some pyramid scheme." And then I realized that there's a lot of misinformation, some myths. And there can be some weird reactions not just at the dinner table with your family but also with regulators because it's not always sunshine. It's not always rainbows because we have seen unfortunately like in the American side of of things in South America and Europe also maybe some things that are not so mis that are not so understood which is why we do what we do at owl explains.

and following the theme of the owl and it's like this um illustration for the presentation. It's this concept called the tree of web 3 wisdom. So it's just five branches, five ways in which we come to these policy makers, we come to the regulators and we're not going to tell them, oh um blockchain is cool because you can buy crypto and sell it blah blah blah. We need to show them what it is, what you can do. And this is what we're going to talk about today because innovation is this soil from which we can build the better internet.

And well, blockchain is this root system, decentralized, traceable, secure, transparent. Because it's no secret that blockchain technology is revolutionizing industries worldwide, from insurance to art to supply chain by providing secure, transparent transactions. And yes, this leads us to the hot topic of regulation. But it's super clear to remember that it's not an argument for super strict regulation and just um in a way to like choke the people and make it so hard for them, but not make it into this crazy playground where a lot of fraud can happen. We have to find that sweet spot, that balance, and it's that workable regulation.

So branch number one and it can be very um basic at the beginning but if you don't understand like the key informations at first how are you going to explain it to policy makers in a way that they understand because we're not going to show them okay um ERC tokens and this crazy stuff at the back end to people that maybe don't have a big technological understanding also people from different generations so we try to keep it very um simplistic concise and effective. If they understand two or three things in a clear way, I call it a good day. So to put it simply, how do we explain the concept of a blockchain to them? We just say they are an infrastructure that allow us to build a better internet making it safer, more open, more secure. And this new infrastructure is what at the end of the day enables new use cases and business models.

It allows for digital ownership, for the transfer of value. So this is um the message that allows us to tell the blockchain story in an affirmative way because there's a lot of hype, a lot of stuff that you see on the news that maybe is not helping. So starting in this neutral approach and then coming down to the three hard problems that computer science that blockchain solves, we can actually get their attention. So problem number one, how do you get a disparate group of computers to agree on a common data set? Number two, how do you establish digital uniqueness?

And three, once you've got this digital uniqueness, how do you establish and transfer ownership? So this main message, these three problems is the opening to all our presentations to regulators and policy makers because it's what allows us to anchor the technology in real world applications that go beyond cryptocurrency. because users can program on these databases to leverage their computing power and create applications that are part of a larger tech stack for anything that people's creativity can imagine. So yeah, you understand it at the beginning. But the second part and this is like the tricky part which is understanding what's right and what's not so correct.

The misconceptions because it's not just money, it's not just fintech, it's a diverse ecosystem featuring a wide array of use cases. So I've listed four misconceptions, but um I think that we could stay all day just talking about, oh, this is myth number one and then this is the truth. kind of like this game of a truth and a lie. I I think we could stay a long time, but I'm just gonna I outline these these big ones. Um because there's like, oh, blockchain is synonymous with cryptocurrencies.

Like I said earlier, that's not always the case. Blockchains facilitate crypto assets, but they also facilitate many other types of activities because it's a database. It allows this data integrity, this digital uniqueness through the process of tokenization, which simply means to represent something digitally because a token is not just something that um you buy it on exchange that maybe goes up, goes down. That's not always the case. It can be an item.

It can be an asset, a bundle of rights. You can tokenize whatever you want. You can tokenize a box of oranges. You can tokenize a pair of shoes. But here's the key thing.

When you tokenize something, it does not change the essential nature of the item any more than describing it on a piece of paper changes it. You're just representing it in a new way. We also have misconceptions around decentralization, which is um number three. No, you think like, oh, it's just this crazy system. It's this um anonymous base, untraceable, but that's not the case.

It doesn't necessarily mean permissionless and public because a decentralized system promotes transparency and security by having no single point of failure, no single source of truth and no single entity or authority with the power or the obligation to change data or transactions. There's another one which is oh NFTs. I I remember the big NFT boom a couple years ago of like the monkeys and just this crazy hype which yes it's a fun ecosystem but you can have NFTts for tokenizing real estate for verifying the ownership of items and it doesn't necessarily mean that you're trading in the marketplace like open C branch number three and this is um my personal favorite because it's where we actually start to get into some some of the problems some of the things that are very um relevant today because coming back to our illustration of the tree is that just as we have this biological taxonomy that categorizes plants and living things, it's really important to employ a good system that classifies the tokens because we have these custom blockchains, this advent of this new type of database that will keep on enhancing the use cases. But the problem is that the definitions in some jurisdictions in some of these uh regulatory writings are too broad. We have these very broad definitions and we see them through exceptions narrowings.

It's like we define something but then the actual exceptions are longer than the definition itself. And another big mistake is jumping to the conclusion that oh all digital assets are the same. So, we just lump them into the same thing, one size fits all, but they're diverse. It's the same kind of nonsense as expecting all human beings to be able to wear the same dress, the same size when some of us are a bit bigger, smaller. Same thing happens with tokens.

So, why are we treating them as a homogeneous asset class? Because when we treat tokens as financial instruments or when we treat the trading of tokens as financial activity, the only thing we're going to do is that we're going to limit their use in commerce and communications or pretty much anywhere else establishing ownership. So learning the nature of a token, its functions, its features. This is the key to understanding their utilization, valuation, the legal treatment and therefore the appropriate regulatory context. So this is um a type of classification the sensible token classification system that that we wrote.

You can check out the QR code. It's this paper that we recently published that the GBBC law journal for blockchain. And it's just this way to classify okay is this token a physical item? Is it an intangible item? a type of service, a stable coin, or is it simply a native token integral to the functioning of a particular blockchain network?

And I've listed some of the examples up there. Um, and this is just a simple synthesized way to illustrate this shift from our paperbased world because just as we classify things on this tangible paperbased world, we need to also see okay when we tokenize them, which remember is just to represent them on the blockchain. We're not actually changing it. We still need to classify it in a way that that makes sense. So, I invite you to check it out and I'm going to do just a presentation like on the five main branches, but I think that we could do like a long one just on classification.

But like I said, when we're talking to to policy makers, kind of like this elevator pitch, you need to keep their attention and make sure you're giving them a good overview and not getting super super granular. And then little by little, okay, you can start getting deeper into these other topics. And okay, we have the classification, but now that we know what to name them, we need to enact the context appropriate regulation. And back to our little analogy of the plants, we know that plants need specific care depending on their nature, on their location. Just as you have, for example, a tropical hibiscus plant, but you treat it like a cactus, you're going to kill the plant.

It's not going to blossom. Same thing here. If you treat um a stable coin the same way as you treat um an intangible token, it's not going to yield good results or maybe you're not going to use the technology to its fullest. And this branch or this point number four, I tried to give it with an asterisk because yes, there are so many ways to interpret it. This is one way that we present it.

But appropriate laws and regulations traditionally they have been determined according to the type of asset of or technology and its context. What do I mean by this? I simply mean how is it being used by whom and what are the associated risks. So just at a very general level, I think that this same approach could be used to blockchains to tokenization which remember they are just a new way of establishing ownership and transferring value because there are many forms by which an item can be represented. Distributed ledger technology is just one of the newest.

So there is no need to abandon sound principles when a new technology for representing things comes along. And just as a simplification, but I know there's always when we talk about this legal stuff, there can be some exceptions and things, but we can say at a high level that what has been regulated a particular way in the physical world should be regulated the same way in the digital world. Applying the guiding principles of same asset, same risk, same regulation or same activity, same risks, same regulation. And another point is that as of today there are still many web 2 activities that are not necessarily regulated like internet service providers, software development, browser technology while policy makers are looking to regulate the web 3 equivalents like operating validators, deploying smart contracts, personal wallets. So a key point here is that we need to show the confluence, the intersection, drawing the parallels so that the regulation of tech if it happens is truly activity based rather than technology based because drawing these comparisons is also important to avoid absurd results like applying AML requirements to a person that's just operating a validator node in his room.

Because here's the thing, and I think that regardless of the of the approach, because some things might work better in one jurisdiction over the other, a key thing is that responsible actors, developers, creators, want sensible policies that incentivize growth, that incentivize this good behavior, that punish the bad actors, that regulate the intermediaries without necessarily choking their neck and making it impossible for them to build and create ecosystems. And I've seen also with our conversations with creators with developers that many of them are willing to provide the guidance to policy makers to achieve those aims. But a thing that we've noticed is that there is still a lack of communication both for policy makers to understand what the technology is but also for developers to understand okay how does this particular piece of legislation by this this governing body affect me? What can I do? What can I not do?

So I think that a key thing and part of why we do what we do is we sit down, we have this podcast, we talk to the regulators, to the builders, and then get them to come together to the table. And a key thing that we've seen is that the main reaction sometimes is like, "Oh, I didn't know you could do that with with the blockchain. I thought it was just just trading. I thought it was just this unsafe technology." But if nobody tells it to them, how are they going to identify the the key things that they need to regulate in a sensible way?

So just to conclude this branch number four, when and where do we need regulation? We could say that in a short way it could be where there is a lack of well-defined regimes for assets. But I'm sure we could get more into this one. But branch number five and I think this is this is a key one and the the one that we need to also zoom out and expand a little bit is that the root systems don't stop at a border but are interconnected with each other and if we acknowledge this we can actually help them drive thrive because the growing reliance on the internet for telecommunic for telecommunications commerce recreation demands policies that foster innovation promote inclusion and support the digital infrastructure both for the software and hardware level. But it's easier said than done.

I think there's a lot of things that you can just say in theory, but then in the practice, I am aware that it can be a challenge, especially when it comes to balancing this innovation with the consumer protection. It's kind of like finding that that sweet spot and maybe in some places you might need to adjust one thing more than the other. But one key thing is that just like the internet, blockchains and crypto assets require a coordinated regulatory approach. And notice that I said coordinated, not necessarily harmonized because I think we hear a lot about harmonization, but it's not always easy to reach this harmonized regulation. I mean, it would be beautiful, but I still think we have such a long way to go.

But if we can get the policy makers to coordinate across nations, across regions to align their approaches to foster innovation that benefits everybody, having these clear guidelines is going to be much easier because it's kind of like you have this this game and you play it without the instruction manual. You're going to be lost. And then at the end and then at the end of the day, you're going to have the enforcement approach which tells you, "Oh, you couldn't do this." But if nobody told you what you could do, you're also like in this, you're also like against the wall in a way. So one key thing is like I said this coordinated based on first principles regulation including disclosure, market integrity, anti- fraud, privacy, operational integrity because like um markets are going to rise, they're going to fall.

We're going to have these waves, these cycles, people can get scared. But if you're here building, building a quality project, if you're building with a good value proposition, you're going to continue creating new and exciting ways to use blockchain technology for a multip multitude of purposes regardless of the trend or what's hot right now or what the hashtags are on crypto Twitter. But like I said, and it's also my my CTA, my call to action to everybody is to have this collaborative approach to come together and also talk to policy makers and sort of drill it in a in a simple way for them to get, okay, this is what we're doing. This is what we can do. and not just tell them, but show them.

Kind of like I don't know if you have this in in Serbia, but in in schools or at least growing up, you had this show and tell, which was you would bring something, you would tell people what it is, and you would show them whether it was like a toy, a cool thing that you built, and then you did like a demonstration. So this is also the encouragement because with blockchain there are projects that we've also shown to some senators to some policy makers on on our podcast that you can have for example a DAO built on web 3 that um advances women's health research. Recently we talked about um talked to some people in Ireland that are using the blockchain to help people afford health care to have these health tokens that are used exclusively for healthcare procedures. So when you show these things, the reaction is, "Oh, but I didn't know you could do that." Okay, you get their spark.

You get their interest. And then once they're at the door, I think it's much easier to have a more coordinated regulatory dialogue. And you can choose the way you you want to do it. We have chosen to do it with these five branches, this short synthesized way, but it's up to us to make our voices heard, to show them the cool stuff we're building, show them the use cases, but also be prepared to have some of the difficult conversations, demystify things, be willing to listen as well, because that's where growth happens. But it's up to us to have these spaces.

Thank you so much. I don't know if there's any questions or We're good.

Ah yeah. Okay.

Um okay. Um maybe one observation and one question. Uh observation first. Um thank you. This is uh very informative as a non-legal web3 professional.

I do a lot of market research. I stay on top of or at least try to stay on top of innovation happening. But this policym perspective seems elusive, right? So it's abstracted. It's very complex and um the the key the key point that I took from here is that the um actually policy and legislation comes from very strong fundamental standardization of terms um and on the latter one one question um what would be the next steps or how do you see uh this coming into place whether it's international organization working around models such as you and your colleagues for example proposed in this taxonomy of tokenized assets.

Um who are the the key players here? What are the addresses that that you would uh go to when when trying to implement this new standardized terminology? Because if I remember correctly, I believe Micah regulation in Europe um one of the last iteration was actually concerning standardization of white papers. So this this definitely I think uh um shows that the track of policy making is uh fundamentally connected to standardized language.

Of course. Yeah. I think a really good bridge that we sort of have and like you said like that next step and also that reachable system is trade associations different entities that some of them are more global in reach some of them are more regional like here in Europe we work very closely with the European crypto initiative blockchain for Europe uh the GBBC global blockchain business council but also in the US you have blockchain association digital chamber so they are basically the big names that bring together the developers. So in our case it would be like Avalabs, the blockchain um ecosystem with also the people from Congress, the people there in the EU commission, the parliament. So I think the next step is to continue to have these things because I think that we will reach the point at least according to me of like oh how will I know we will reach mass adoption is when people stop stop saying oh okay blockchain is the same thing as Bitcoin.

Like I think once it starts clicking in for people, but we're not at that point yet, then we'll be like, okay, it's working, but we're still a long way from that. But like just to answer your question, trade associations getting involved, see who's like, okay, in your area, who can be that that link and also that's also why we created the podcast, created this policy comment letters, seeing what's out there because there are a lot of other people also doing what we're doing. you're just one of the voices out there. But just asking, reaching out and I think that the people are very open. That's what I've seen.

So yeah, that's my my answer to you.

Thank you. Um and don't forget to check out Explains uh Sylvia's podcast.

Yeah, you can. We welcome you there. And if you'd like to also talk, participate, reach out to us. We'd love to get to know what you guys are doing, showcase cool projects, maybe to a different audience. Like I said, people in in the EU Commission and US Congress that are maybe a bit more distant from this technology that are like, "Oh, there's these people in the Balkans building this really cool stuff with the blockchain."

So, we we welcome everybody. Thank you.