# New regulations and how the industry is responding | ETHDam 2023

- Channel: [CryptoCanal](https://streameth.org/cryptocanal)
- Date: 2023-10-07
- Duration: 36:21
- Watch: https://streameth.org/watch/yt-tJhLZG7msFc
- YouTube: https://www.youtube.com/watch?v=tJhLZG7msFc

## Description

Menno Martens is a Crypto Product Manager at VanEck.
https://twitter.com/mennomartens
 
Marina Markezic is a Director and Co-Founder of EUCI - European Crypto Initiative, an EU based advocacy group.
https://twitter.com/MarinaMarkezic

Fatemeh Fannizadeh is a board member of the Swarm Foundation.
https://twitter.com/Fatalmeh

Panel moderated by Jonathan Knegtel. 
https://twitter.com/jpknegtel

ETHDam is a Hackathon & Conference that gathered over 500 DeFi and Privacy builders on the 20th and 21st of May 2023 in Amsterdam. 

Privacy is normal. Following the arrest of Alexey Pertsev, a Tornado Cash developer in the Netherlands, ETHDam 2023 is determined to counter the chilling effects of the lawsuit and bridge worlds to discuss the future of privacy, encouraging to build on the shoulders of cypherpunk giants.

ETHDam is powered by CryptoCanal, - a blockchain education and events platform growing in Amsterdam, spreading its roots to Rotterdam and Zurich. 

ETHDam 2024 is on the map already! Keep up with us to see updates: 

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We would like to thank our partners and sponsors that made this event possible. 🌷

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## Transcript

foreign [Music] to chat about regulation which might seem like a very dry subject but unfortunately it is very important and it's becoming increasingly important so I'd like to invite to the stage my three panelists I'll start with Fatima thank you very much Round of Applause [Applause] then Marina and meno [Applause] um so again we all know the slido I am going to get rid of the previous questions um now thank you all for coming and welcome to Ethan in Amsterdam I know you've been here before I don't know about the other two have you been oh yeah I been I am actually born and raised in Amsterdam so perfect and you yeah we're really glad to be here today cool well I hope you enjoy it later on this evening um so to start it would be great if each of you could just give a very quick introduction of yourself and also what you do around regulation and kind of what's your interest in it sure I'll start so many Martins so it's nice to see you all here being excited about privacy and defy so I worked at a central bank the Dutch Central Bank as a policy advisor on crypto this was great and it was a very valuable experience because I got to work on for example stuff like the digital Euro and on Mika that's upcoming next year so I feel like I have a lot of insights here to share with you and now I'm working at the global asset manager funnec I'm product manager of the crypto etns here in Europe and also working as crypto specialist just as in Europe to kind of spread my knowledge with my colleagues and go to events like this cool thank you my name is Marina I'm a lawyer co-founder and director of the European crypto initiative which is a non-profit organizations based in Brussels it's an advocacy group so we talk to EU Regulators about anything that might affect crypto we've been here for a few years we worked on the markets in crypto assets regulation and right now the big topic is AML there's a whole AML package that has been currently discussed in the trial logs so I'll talk about this too and my name is fatimae I am a criminal defense white collar crime defense lawyer and crypto and privacy Advocate and Council and I advise several of the Privacy projects within crypto cool thanks a lot which is a perfect segue into the first question which is around the fact that we all know that Alexei has recently been detained here in the Netherlands thanks to his involvement in tornado cash and I'd like to hear all of your thoughts on on the ongoing case yeah I'll start um so just right off the bat like uh as as manager we are of course a regulated company um so we know all about regulation um and compliance unfortunately uh that's just the reality of it um so we are pro-regulation um that's not you know to say that there hasn't been any Injustice done in Alexis case I actually really liked uh Keith's example on this analogy where you kind of compare like well I used the the curtain manufacturer and the the one who uses the curtain which is you know a lot like using privacy tools on on ethereum and you have to ask yourself like is is the the curtain manufacturer like um doing anything bad really um it's it's really like a hard question to ask and at the same time is the one who uses uh the curtains someone who is like automatically a bad person and this is like really hard um but what I'm primarily like looking at in in my role right now is where do things like AML privacy overlap each other and how can we create privacy tools that um kind of still benefit both and this is something that is really interesting to me um yeah um I find first of all what happened with the arrest and the proceedings that are current right now very unfortunate this is extremely sad actually to see that Hub see that happening in Europe right now and also because we had so little access to information like throughout all these many months like as a community we didn't know also how to react so I'm very glad that despite also the sanctions against tornado cash people kept on using it I mean the sanctions were only in the US but nonetheless like Europeans for instance had still like were still allowed to use it and kept on using it which um also like fed in the defense of um of Alexei as not being a key a person within tornado cash because it was still being used afterwards um I feel like I want to just emphasize that the open ending talk at this conference this morning from Alex's Council was to Me Maybe the most important like crypto privacy legal talk ever given in a conference because it gave very practical basically tools for anybody building in the space to know what is like what would any defense look like and what are basically all of the narratives and evidences that you would need in order to prepare that defense and if we can work ahead of time on all of these points then there would be way less like grounds to worry about it I would like to continue from where you started this talk this morning was in a way using legal arguments but they were most of them they were based on the technical aspect so we found this very very important and it's a part of our everyday job to explain like why this stack is different why it works in a specific way and it's in a way really hard because there is a very limited time that the Regulators have to understand it we're talking to different Regulators for different regulations different documents and at the same time I think this is the only way how we can make in a way a better understanding of how this works and how again it is different from what we are used from before there are so many examples that I can now talk about but maybe later in in this discussion it's about regulation of smart contracts is understanding what is decentralized it's understanding what is privacy it's just I think more and more efforts need to be put into in a way educating how this stack works yeah thanks a lot and I actually want to give another round of applause to Mr Chang there for the presentation this morning um so that's where a lot of the upcoming regulation really seems to overlap and and discuss a lot of the the AML the anti-money laundering um which is fundamentally on the surface against privacy because they're trying to understand all of the different actors and really what everyone's doing to protect against money laundering so I'm interested to hear from each of you really how do you um how do you view this balance of privacy and being uh yeah anti-money laundering so what's interesting is that you know in the traditional Financial world people actually love privacy and confidentiality especially of Trade Secrets and you know um so the only difference is that um you know there's the regulator who always has a view into into everything and in in defy and privacy this this might not always be the case and what's even more interesting I have a lot of experience trying to you know explain um regulators and and policy makers how smart contracts work how decentralization works and they really fail to understand it sometimes that you can't just control the smart contract that's already deployed you can just change the code you can't just control who accesses the code um so yeah it's it's a it's a really really hard challenge especially when when AML comes into the view how do you deal with this and I think like an interesting venue would be going into introducing things like social consensus in protocols where you can still like try to through decentralization control who who can access the protocol and who can't access the protocol if you of course have got some kind of proof that this that this user is a bad actor but how do you label a bad actor how do you find that proof these are all challenges that that we should be that that you guys should be working on to make D5 a safer space because um Bad actors will exist as long as there's money to be made unfortunately and if we want to keep our own users safe then we need to work on this uh really well especially if we want the rest of the world to adopt this technology from my point I think what's what's important is that from the beginning of this ecosystem The Regulators have not reacted immediately so they said okay let's look at what's been built let's see what this is and then we'll we'll think about it a little bit later so right now they have made the decision to regulate the space that is very very clear it's clear uh because it's coming from the EU it's coming from the US and also from the international organizations so we're talking about privacy right now and um I mean privacy has been debated on many different levels we have the fadef deciding what privacy is and what AML is we have all the national and Way Ministries organizations governments deciding what privacy is and I think you mentioned before the digital Euro this is going to be a very important experiment for Europe and to see where and how the creators of the digital Euro think about privacy and it's in a way surprising because what they're saying is that in a way anonymity is an absolute term but privacy is not absolute terms so the most important thing is in a way to be compliant with AML rules and I think that what is very interesting for our work daily is how we see that the rules when it comes to AML are different when it comes to compared to let's say crypto or the digital Euro we are saying this is uh digital money so it's much easier to in a way you know send it to to from one person to the other versus cash and so what we're seeing right now in this trial logs where we're negotiating the AML package is that in general when it comes to crypto we'd have more stricter rules than the ones that we're used to when it comes to cash so the thresholds are lower uh there's more in-way checks in in between and our our work in a way it's to argue that we need to have at least the same level of privacy that we have with cash and we'll see how how this will turn out I think we have another probably a year or a little bit less to see what is the what the final documents on this will say in Europe I mean I personally questioned the whole legitimacy and efficiency of the kycaml regulations that exist right now and also the legitimacy of fataf or fatf um as like the most maybe important body setting these like standards and regulations in the space um in the financial space uh but the the thing is that like we have to also be clear that we are fighting against regulation that is unfit for purpose because I mean all the kyc rules do is make more expensive for criminals to do whatever they want to do although they still do it but they just have to come up with more sophisticated structures so in the end it does not necessarily address the point other than add this kind of hidden tax for what they consider Being Bad actors I feel like there are many kind of technological equivalents that we can innovate and create that would attain the same purpose of excluding these Bad actors that are not like kyc base or that are not like using the same mechanisms that are right now in Vogue in the financial space and um but the problem is that we are facing an industry a very very big industry so all the kyc providers this is a lot of money they are getting obviously they want to protect their industry um all of the banks all of the financial intermediaries have processes in place that are very costly um so anything that we come up with would mean that all of these will may become obsolete later so there are also all of these other factors that come into play when regulation basically pushes or when people Lobby for a certain type of regulations that privacy Tech may not be willing to tailor for nonetheless I agree with everything that was said in the previous panel in terms of private stack is the future I think there is no way around it wants to tag is Major and usable on a daily basis like why would anybody not use privacy tags so the only kind of pain point right now is that it's not uh for instance it's not on on the ethereum blockchain level but once it's adopted by all of the networks and protocols um then there is really no way around it and and other people will have to adjust and find other type of mechanisms I would just want to answer briefly to the arguments that was made before that like the tech is decentralized and we cannot stop it and we cannot stop or control the smart contracts and so on this is an argument that we all use this is infrastructure so it's a tool we cannot interfere with it so we're not responsible I think this is a very delicate argument to make especially if it becomes case law at some point because they can just force you ahead of time not to design anything that you cannot control and this obviously would be very very bad for for everyone so we'll have to also be very careful about what points we put forward and if we put such a point which is a legitimate one then we have to kind of argue for it in a way that they understand and they want to maintain it maybe I will just take a minute after that again comment there is an example of um the thing that just what fatimi explained um a data act regulation that has been postponed in the EU is regulating smart contracts in the article 30 and it says that smart contact need to be stoppable they need to have a kill switch they they even say we need to be able to reset Smart contracts um so it is used for specific cases of data sharing but it is something that we have written a position paper on we had 19 other organizations signing and supporting this and we still have I would say not understanding or not willingness to change this in the EU and I think that we're talking about tumika we're talking about a financial regulation but then we have something that is so like small and didn't have didn't bring a lot of attention but we are in a way regulating and limiting the core of what we are using here in the space and yeah that's that's very very important because they can come up with rules where you're saying in first place you are not allowed to design tools like that and wherever you do it it's not going to be compliant with any of those regulations that are coming up from now we don't want that sounds bad um regulation generally is perceived as negative and has traditionally been perceived as negative um but I'm interested to see as it's developing is there actually something that is exciting about regulation kind of what what do you think it's going to enable in the crypto space I think I shared this with with you guys already yesterday but something that I came across is that actually whether whether or not it's because of Regulation that's upcoming in Europe Europe actually has the most amount of crypto friendly Banks right now this is of course partly due to whatever whatever is happening in the US and we've also seen that the number of VC investments in q1 to 2023 was more than anywhere else in in the world so Europe is a has to had the highest amount of VC Investments and I think this is partly due to to upcoming Mika regulation um and this touch is like an interesting point because I know if you guys are familiar with the the concept of like the Brussels effect so this kind of explains that um Europe somehow seems to control the rest of the world through regulation and any company outside of Europe that wants to Target the European market will somehow indirectly comply with with the regulation in Europe so we'll see that like Mika will like form the basis of pretty much every other regulation that's gonna come into Force outside of Europe so I think you know there's a lesson to take here is that we should look at Mika and try to understand it in every detail possible if you're working on a project right now and you're planning to launch in the upcoming years and try to just understand it and see how you can comply with this regulation because it's going to give you a competitive Advantage compared to to those who don't it's really refreshing to hear european-centric take because usually it's a very U.S country and thinking that Europe sets the legal standard for the world I mean if it's a good standard then maybe why not but another reason I think that there is so many investments in Europe compared to everyone everywhere else right now is actually the regulatory confused state of the United States right so everyone is so afraid with projects having a connection or like a Nexus to the US of any form of enforcement by the SEC or and so on that if a project is non-us then it can attract money more Asian and BC is prefer to invest through the an European arm a very exciting thing about regulation in Europe was a part of the markets in crypto assets regulation and the decision of The Regulators to create a completely new asset class that was called crypto assets so um it's Fatima said there's you know confusion in the U.S should the token be a security or utility and here we didn't have this in a way decisions we just came up with a new asset class there's a completely new one never existed before and it's regulated in a way that is it is regulated but it's regulated not as strict as for example a financial instrument as we call Securities in the EU so I think this is a very good approach it's in a way very similar to what we have seen in the past in Switzerland but it's very very important because we have acknowledged that these crypto assets are different from what we have known before and they need a specific way of being regulated and again I hope this is something that others will follow through the Brussels effect but there's going to be definitely a lot of debate in the future cool um in like five minutes or so I'm gonna go to the slider question so if you do have any questions please make sure to put them in the slido um my last like big question which follows on from the regulation is how do you think both traditional companies as well as crypto projects prepare for the Mika regulation come to the EU it's great foreign so for traditional companies it's going to be a lot easier because they already spent a lot of time and money on on compliance and regulation like uh auditing reporting Accounting Standards Etc so this is something new that that will uh that will be for like the the crypto based crypto native companies I would say already like start practicing maybe even just to do like a just a practice rounds before this Mika regulation comes into Force but maybe more important is that you'll get a lot of time to uh to implement uh regulation into into your product project compliance into your project so there there's plenty of time to to look at how you how you can do that that's a good point so the Mika regulation has been issued first as a draft in 2020 so today's 2023 in a year the part with that talks about stable coins is going to be applicable so July 2024 and the end of 2024 or beginning of 2025 the other parts of Mika is going to be applicable they're talking about crypto as a service providers and the issuance of crypto assets so there is still some time even in 2020 I think the draft is maybe changed 30 percent 20 so like we had three years to read the document and kind of predict what could happen but at the same time there's a lot of unclarities we are waiting for the two agencies the European banking Authority and the European Securities Market agency to give us more clarity through technical standards and guidance to very specific questions like for example what is an nft where is the limitation when something is an nft when it is regulated more clarity on stable coin regulation I think this is going to be very very important for all of us and even looking into potentially the listing non-regulated stable coins so what would that mean for the European Union Market what did it mean for all the like applications built on top of those in a way stable coins are using stable coins I was talking to a few exchanges they still have a lot of questions and those questions will be hopefully answered as soon as possible from asthma but I think that it's something that never happened before in this space and we will have a very detailed like very I would say comprehensive regulation and I would say this space at least in Europe will change with it for sure um I'm a Swiss lawyers I can't really comment on Mika but I just want to say um a lot of lobbying went uh into making Mika something that is praisable right now and people talk positively about it and most of the I think important lobbying was done by Marina here in her organization and like this organization Marina are lobbyists if I can say and researchers that truly believe in decentralization and crypto and whatever we're doing in building and really Advocate on behalf of the industry which is extremely rare in terms of people who go lobbying and kind of interface with The Regulators so I just wanted to thank you Marina thank you thank you Marina cool maybe I can just add like three things um so I don't want to make it about Mikko or anything but um so so the first thing about Mika is that it had it had three goals I think the first goal is maybe not their intention but it might be the the end goal is Europe kind of lost web2 and they're trying to make web 3 the European thing here the second thing is they're they're trying to protect the euro through through the regulation and the third thing is that they're trying to protect investors so actually you know there are some wins and losses with this regulation but I think it's mostly good because I think there are a lot of like big institutions waiting on the sides by Sidelines to get their hands dirty with uh with crypto so this is a big opportunity for for European uh companies and I would say take that chance cool thank you um so to on on to the the slido questions um one is directed at you Marina asking if you could repeat your point about mandate mandatory control of contracts I think that was around the kill switch maybe um yeah someone had a pass error in their brain so yes yeah there's been this data Act is currently debated in within the trail lock so that means that all three institutions are discussing about it it's not final yet but what we have seen written in those different drafts is that when smart contracts are used for data sharing they have a specific way of how they need to be designed and usually I mean what's written there is that yes there should be they should be stoppable they should be designed in a way that they give access to someone we don't know specifically who probably the public authorities um even in certain parts the the parliament version for example says that they need to be able to protect Trade Secrets as you mentioned before and they need to be compliant with other contracts usually the the legal agreements that we know so it's really like it's really shows very clearly the misunderstanding of what a smart contract is there was even our thoughts that maybe they use Smart conduct in a different way as you know years ago there was a popular to the industry 4.0 smart devices smart contracts were popular so we were thinking maybe they're using the term in this sense so it could be a digital contract and then it would make sense but I don't think they they did so I think they did want to capture the the in a way blockchain part in and um I find it very hard to be compliant with this article 30 except if you're not for example using private blockchain or if you're just like using a specific smart contract standard for whatever applications you're building and I think it also limits the use of like open source stack and you know exchanging knowledge to through open source so that's um yeah quite concerning cool thank you for sharing um the next question is an honest question framed as the following do the authorities know that the AML rules that we have today in the Fiat system do not really work and with little willpower they are actually bypassed I can go I think it's very important to distinguish two ways of how Regulators think one is maybe they really do not understand specific things and they didn't want to regulate it in this way so it was basically almost a mistake so we can argue explain and then the outcome would be different in certain parts they do understand it and they still want to go on and regulate it as they want so I think in this part we are caught in this AML I mean way of how we are fighting um and in a way terrorist financing Etc that is like fatimi explained here from years and years and it's really hard to change and to revolutionize the way how we are doing this and of course we have new tech and we could propose this new tag but I think the the oh the window we have the window of opportunity to propose new technologies and to propose new ways of how to regulate crypto is kind of closing just because they're getting more and more detail into those regulations on copying what what existed before and once the regulation is finalized it's not going to change for years after that at least not in Europe one thing though is that uh either tornado cash compliance tool or privacy pools or any other project that kind of tries to build in some form of um kind of AML tool is really important because that like communicates Our intention to fight against money laundering um through our own kind of ways and that can be sold to the regulator so I think that they are just stuck in whatever they know best and there are so many dependencies around it that it's very hard to see outside what is possible especially because they have no knowledge of what we can build and what a crypto and and private stack enables so if we can build more of those and then just approach them I think I mean I wouldn't see like that they may be stubborn but they are not entirely irrational and in the end they serve their constituency so if there are anything that we can go with to them I don't see why we cannot try and maybe like find Common Grounds cool thank you um could you tell us one good thing and one bad thing about Mikko a little bit quick fire so I think one good thing is that it brings a lot of clarity if you're if you're somewhere based in Europe and Mika comes into Force basically it allows you to to passport your surface or product anywhere in Europe because it's you know it's like a uniformity of the European Union so that's a big Advantage it gives a lot of like um you know just clarity about what you can and what you can do and maybe one bad thing would be that it does regulate the space it does imply some limits you need to have white paper you need to issue your or a Longshore project like one year after the white paper is is published stuff like this so that there are some requirements to to what you can do but maybe those things are actually also good uh the good thing is the exclusion of defy and decentralized organizations and the bad thing is a limitation of the use of non-year denominated stable coins for payments to 200 million per day and if this limit has been exceeded the Mika says the issue of a stable coin should stop issuing stable coins so I leave you with this good thing is that it moves the needle away from the US bad thing is it's just more regulation the last question that I have here and I'm interested in also the Swiss take on this because I believe it's already there is um what happens if we put traditional assets AK Securities on chain now with Mika and but maybe you can share the Swiss because I believe it's already completely legal there um I mean you you can put Securities on chain but you still need to follow Securities regulations right so if it is a security then uh you you you can have the Ledger basically being on a blockchain and that's possible in Switzerland but that doesn't spare you from like complying with any kind of traditional Securities regulations um that's actually something that is not regulated by Mika Mika doesn't regulate financial instruments or Securities uh we have this in Memphis already but there is a new law that is called the DLT pilot regime which basically defines the rules on how you can put Securities on the blockchain and this is already finalized there are going to be a few companies using this in Europe but it's also extremely extremely I would say detailed in what kind of tech you can use and there's been already criticisms for even from the national competent authorities to the complex complexity of it do you have any comments about securities um well you know when it comes to tokenization there are also like a bunch of more practical problems that we have to solve there's like the difference in in settlement time there's a kind of liquidity problems so as as much as I'm in favor of tokenizing um the DLT pilot regime makes it possible to tokenize but it feels like we haven't really solved the why and the how entirely cool thank you and with that we're at time so please give a round of applause for our panelists and thanks a lot for joining me today [Applause]