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Web3.0 Study Meeting (9th)

Overview

  • Date and time: Wednesday, November 30, 2022, from 9:30 to 11:00
  • Location: Online
  • Agenda:
  1. Opening
  2. Proceedings
    • Commissioned Interim Report on DAO and Consumer Protection
  3. Adjournment

Materials

Minutes

Date

Wednesday, November 30, 2022, from 9:30 a.m. to 11:00 p.m.

Location

Online Meetings

Attendees

Members

  • Jiro Kokuryo (Professor, Faculty of Policy Studies, Keio University)

  • Masahiko INAMI (Special Assistant to the President of the University of Tokyo, Professor of Physical Informatics, Center for Advanced Science and Technology

  • ISHII Natsu Shori (Professor, Faculty of International Information Studies, Chuo University)

  • Joichi Ito (Director and Chief Architect of Digital Garage, Inc., Director General of the Innovation Center of Chiba Institute of Technology)

  • Keiji Tonomura (Attorney, Nagashima, Ohno & Tsunematsu Law Office)

  • Taiyo Fujii

  • Shinichiro Matsuo, Research Professor, Georgetown University

  • Noriyuki Yanagawa (Professor, Graduate School of Economics, The University of

Digital Agency

  • Director Kusunoki, Counselor Nozaki

Minutes

Deloitte Tohmatsu Consulting explained the interim report of the commissioned survey on DAO.
The following comments were mainly made by the members in the question-and-answer session and the exchange of opinions.

  • Member: DAO law, the policy of adding the DAO law to the current concept of the law is similar to the process in Wyoming and Tennessee in the United States. They are increasing their liability obligations as an evaluation, but there is no benefit. The DAOs made in Wisconsin and Wyoming have unexpectedly many increased reporting obligations, and there is no technical depth in the law. For example, it is necessary to report the address of the smart contract first, but like a general company, at the time of launch, a bank account can still be opened. Therefore, it is necessary to make it possible to upgrade, such as creating a DAO and then thinking about a smart contract. However, depending on the blockchain, it may be difficult or not a best practice, or the U.S. law may not be working well, such as how to define whether a smart contract or a vote is effective. Therefore, even if a DAO law is hastily created, I think the risk of not being usable like the U.S. is a trap. If a flexible DAO law cannot be created, it should be worked on after understanding the use cases, such as a special district.

  • Member: It seems that the law will not be balanced unless the trade-off between benefits and costs is determined. Isn't experimentation important in making it an effective law?

    • Speaker: , we recognize that legislation is advancing in the analogy of LLC and the like because we want to block the risk of unlimited liability and limit liability. We hope to find an exit based on the debate over what we want to realize by law and what benefits we want to obtain if we legislate.
    • Speaker: , it seems that there are a very large number of registrations, 300 and 400. On the other hand, because of this law, there is no momentum to register in Wyoming and start a DAO. There are still DAOs that are searching for a form other than Wyoming. As a cause, I recognize that when the people of each DAO or the people of organization who are ready to prepare a DAO decide what the benefits are and should be used, they did not necessarily go to take the benefits.

  • Member: DAO, he said that if it can be sustained for 5, 10, or 100 years, what is being done in Yamakoshi Village and Shiwa-cho will sprout, so he would like it to be created including a business model for sustainability. One concern is that it is okay for engineers to enter and create DAO, but it is difficult to not only create DAO at first but also to continue to maintain it safely, including responding to software vulnerabilities. If it is created in silos with individual DAO, it will be insufficient even if there are many engineers. Even if it is decentralized, it is completely opposite as a practice in security to build it by hand, and it is important to use what is safe and verified. It is important to share best practices, and if it is safe software and operation form, it is important to be able to use it in common by horizontal cooperation, and to share such things. In addition, I think that what DAO can do, which existing corporations do not have, can be a new idea, including the limitation of responsibility. There is a difference between the responsibility assumed by existing corporations and the fact that a organization can be easily created for a certain purpose and the benefits can be derived. organization

  • Member: Sustainability is very important, but on the other hand, I think we can consider the feasibility of a time-limited DAO with benefits.

  • Member: DAO to the current state and the story of how much the DAO can be demonstrated under the current law and the current rules. It is agreed that in the current state of Wyoming, if it is put into the existing law, only the burden will be increased, and it will be a law that does not know what it is doing for. There is a problem that when it is extended from the current state, there will be a difference from what we expect in the future, and it is probably important for the report to clarify the difference between what can be done by the extension of the current legal system and what is expected.

  • Member: Based on that, I think the first point is that the issue of finiteness is not a problem of technology but a problem of the legal system. Even now, for example, an unlimited liability version of a limited liability company can be created, but there is a reason why the law makes the liability of members limited. Or there is a reason why a union under the civil law cannot be made limited, so it is not simple to make a limited liability company with technology unless the institutional Issue is solved. I would like to ask you based on the results of the hearing about how much benefit will come out from what is said in the current framework of limited liability companies. For example, if you do not have a bank account, you cannot create a DAO or organization, and if you do not have a contact address or address, you cannot create a company. Even in Japan, it is difficult to create a limited liability company or a joint stock company. A company has been established through various procedures, but just because it is a DAO does not mean that everything will be omitted. There are reasons, including some unreasonable ones, so if you do not organize them, this story will not proceed.

  • Member: Second, as a DAO, is there a difference between, for example, running communication on SNS and mailing lists in the community and what is called a DAO? Where is the advantage more than that? I don't know what kind of communities need to use blockchain and smart contracts. I would like to ask you about specific positive stories based on the results of the hearing. For example, regarding the high transparency of blockchain, it seems that it is not always necessary to put all communication on blockchain. Isn't transparency reduced by communicating on SNS and e-mail other than blockchain? I would like to ask what kind of things are considered to be impossible to do without smart contracts and blockchain at present.

    • Speaker: Point 1, there is a discussion that not only focusing on DAO but also DAO, organization and major parties who prepare DAO may be important. Several DAO initiatives with large token market capitalization are listed, but it seems to be a normal scheme that there are various organization entities around DAO. For example, in the case of Uniswap, voting using governance tokens is actually performed in a DAO-like manner, while a corporation called Uniswap Lab actually leads development. The second Ape Coin is led by BAYC and Suga Lab, which has a prominent NFT, but development Design, etc. has registered a organization called Ape Foundation, which supports DAO activities from the viewpoint of how to decentralize and expand activities. The third Aave requires a license, and in addition to DAO, it has a organization that acquires a license and leads activities. There are shades of gray in the degree of disclosure in the public information for each of various initiatives, and the scheme that tries to achieve something only with DAO is recognized as a minority. For example, there are cases in which a joint stock company was created under the existing mechanism and comments that such a response may be possible in hearings with business operators. It may be necessary to examine in more detail how effective it is to define the corporate personality of DAO through exchanges of opinions with business operators.
    • Speaker:
    • Speaker: Regarding the second point, I recognize that the specific examples of expectations and benefits related to DAO and the examples of realization based on hearings are important points. While expectations related to DAO exist in terms of philosophy, it is a recognition that a DAO realized at a very high level does not actually exist yet.
    • Speaker: For example, it seems that it is possible to involve many people globally, but the extent to which the involved people are seriously involved in DAO activities has not yet reached the actual situation in which DAO is being circulated by actively participating in voting, and this is also reflected in the low voter turnout.
    • Speaker: governance The actual voter turnout is a little less than 10% at best. A few people have passed most of the proposals, and some people have limited actual activities. In addition, Nouns DAO, which is recognized as being well managed by DAO in the NFT field, is becoming a variety of factions as examples. It is not desirable for DAO to be divided by having communication, so it is not necessarily completely decentralized. For example, the Discord community has been suspended, and the initial members have the right to veto the proposal. As the recognition of each business operator, while there is a philosophy about DAO in each head, various conditions have not yet been met to put it into reality. Since the current situation is a transitional period, it is thought that best practices will be shared and developed by overcoming the transitional period while looking at various cases, but it is a recognition that there are practically no business operators who have a clear answer.

  • Member: In terms of how far the current law can be dealt with and where legal reform is necessary, it may be difficult to apply the current law in the response plan as it is. Even if the response plan is realized, it will be necessary to review the Companies Act based on the legislative facts. However, at present, there is a subtle impression that there are legislative facts. It may be necessary to discuss whether it is appropriate to give legal personality after sorting out the points of where the use of smart contracts and blockchain mechanisms is most appropriate. When it comes to legal reform, I have an impression that it will take time.

  • Member: incorporation and smart contracts, I would like to confirm whether it is correct to conclude that smart contracts are only a matter of contract theory, and that there is no talk of reviewing the law.

    • Speaker: and the examination of the response plan are the positioning of the draft, and we are exchanging opinions while hearing from business operators about how much the law is necessary in the first place. As an initial impression, we have not yet made progress in each examination to the point that we will use it because there is always a corporate personality. We have started DAO for the time being, but the main concern is whether the benefits and expectations are realized, such as whether the actual state of the activity is really good. When cases in which it is gradually realized emerge, characteristics such as the need for a license in the field and the importance of owning some tangible and intangible assets as a DAO will appear. At that time, when it becomes clear that there is a Issue that can be solved by corporate personality, which cannot be solved without corporate personality, it is thought that the discussion will come to life in the form of revision of the law and some kind of institutional arrangement.
    • Speaker: As the positioning of this study, there are cases in which surveys in various countries, including Wyoming, have actually created laws based on conceptual studies that support the activities of DAOs, such as the possibility that a DAO may be limited liability if it has a corporate status. There are also cases in which the United Kingdom is considering what to do about it. We recognize that it is necessary to continue to consider whether or not these are really necessary in the future.
    • Speaker: Regarding the second point, the legal positioning of smart contracts, it does not mean that something needs to be changed here, but it is limited to the arrangement of the mechanism and protocol itself, in which smart contracts automatically execute the contents agreed in the contract in advance, not the contract itself.

  • Member: DAO to the legal form is that the members have limited liability and the taxation relationship is clarified. In the United States and other countries, if a pass-through taxation is adopted, it is said that the advantages are that it is not a corporate taxation. In addition, it is thought that there are advantages that it is easier to pursue responsibility when something happens if it is registered from the viewpoint of a third party or people around it, and that it is possible to institutionalize it in the sense that supervision can be obtained from the viewpoint of other countries. In this regard, perhaps it depends on the type of DAO.
    For example, if you choose a limited liability company, it will be subject to corporate taxation in Japan, and it will not be a pass-through like an LLC in the United States. Therefore, the point is whether a DAO that emphasizes pass-through should be a limited liability company. Regarding smart contracts, DAOs do not use smart contracts at all, and there is a DAO that simply collects the opinions of digital residents of NFT holders. It will be useful for future discussions if you can dig down into what specific needs there are and what kind of nature a DAO is.

  • Member: Second, regarding the limited liability of limited liability companies, if it is assumed that all members are treated as business partners, there should be responsibility as business partners, and how to think about it is a vexing problem. If it is positioned as a limited liability company, the regulation of the FIEA will be imposed on it, which will be a Issue.

  • Member: , cases in which nothing is registered, or cases in which the name of any employee is not registered, for example, whether or not only the name of the representative employee is registered, may be raised as an issue.

    • Speaker: , I think the biggest expectation for DAO activities is to be involved in the activities, to make the parties involved as large as possible, and to scale up the efforts. By DAOizing the activities or linking the efforts to DAO, at this stage, it is possible to attract attention and increase the possibility of positive recognition. Business operators are aware of such effects as a real problem. I do not think that all can be made into DAO or all can be made into DAO, but I have the impression that they are considering measures to incorporate DAO into their activities well, considering the fact that such effects can be expected by making it into DAO as one of the advantages. I think that such points are expected as advantages. In addition, when realizing the advantages, I think that there will be a gradation in which points, which fields, and which issues will be important, and I think that actual system design based on that is necessary in the process of realization.
    • Speaker: Regarding the responsibilities of engagement partners and the rules under the FIEA, which you pointed out in the second point, we have not yet been able to deal with them in detail in this review. We are at the stage of presenting a possible direction based on limited liability companies as one of the plans, and it is only a material for deepening the discussion on corporate personality based on the needs of those who are working on DAO. We recognize that it is necessary to incorporate the contents pointed out in the course of deepening the review.

Next, Deloitte Tohmatsu Consulting explained the interim report of the commissioned survey on consumer protection.
In the question-and-answer session and opinion exchange, the members mainly made the following remarks.

  • Member: As a compilation of crimes and security incidents that occurred from January 1 to mid-November this year, 37 cases, 230 million dollars, and 32 billion yen were recorded in Ragpur alone, and 105 cases, 2.9 billion dollars, and 403 billion yen were recorded in security Incidents. This year, smart contracts have emerged as something that can be used in the world, and in particular, bridges have been used to connect chains, including bridges, or to solve scalability problems. Since they have begun to be used for practical purposes, they have become the target of attacks, and there is no doubt that the number of crimes and incidents has increased this year. Since crimes and incidents are clearly larger than in the past, it is thought that they should be observed at fixed points every year.

  • Member: On the other hand, as far as I can see, there are five types of security incidents that have occurred this year. They are attacks on legacy exchanges and exchange offices, attacks on bridges, attacks on smart contracts, attacks on oracles when data is imported from outside for smart contracts, and attacks that affect blockchains by affecting protocols to the Internet. With regard to the five types, there are many cases in which major accidents have occurred due to the direct application of traditionally known attack methods, rather than attack methods that have appeared newly this year. The fact that they occurred before last year may be due to the fact that measures for building systems for them are seen, but they are not shared well with a wide range of development people and project operators. There are many cases in which major accidents have occurred due to the lack of sharing of practices for safely building blockchain systems. Law enforcement is also important, but it is thought that efforts to develop human resources together will be sufficiently effective in preventing accidents. I would like you to see not only the story of law enforcement but also the background of it.

    • Speaker: What is discussed here is the organization of facts in the form of the issue of anonymity when assets are illegally stolen by some kind of attack, and an overview of abuse cases in new fields, mainly DeFi. Five types of conventional systems are as you pointed out. I would like to consult with the Secretariat and members on how to write a specific report on how to deepen and summarize the investigation.

  • Member: Does the ability to conduct criminal investigations using cryptocurrencies vary from country to country, and the United States has the resources and skills to set up specialized teams to respond, but other countries, including Japan, may not always do so.

  • Member: To the extent possible, I would like to ask how Japan's ability to respond to crypto-asset-related fraud and darkweb-related investigations should be evaluated. If the use of DAO gives the impression that crimes are rampant, it will affect future developments. I would like to confirm whether a system has been established or is being established to take strict measures against crimes.

    • Speaker: . It is my personal imagination, but it is difficult to objectively evaluate investigative capacity itself in any position, and it seems to be an undesirable current situation that such things can be accessed to some extent casually when objective evaluation is theoretically possible. The positioning of the investigation work this time is to limit it to the enumeration and trend compilation of criminal modus operandi and corresponding investigation cases, and to serve as one input for the ministries and agencies concerned to advance specific discussions on future responses to be taken based on the cases and on the exchange of opinions with each country. Therefore, it is my response that the evaluation of the investigative capacity of various countries is not explicitly addressed in this survey.

  • Member: I would like to ask about the status of responses to improve skills in cybercrime countermeasures and measures against cryptoasset-related crimes in Japan.

    • Speaker: Cyberspace threats are extremely serious in Japan as well. As introduced in the Issue on Responses to Cyber Incidents, in the field of cyber, crimes are committed across national borders with the aim of making it difficult to be tracked by investigative agencies, etc. Crimes are committed via C2 servers, through the misuse of blockchain technology, and through the misuse of anonymization technology. These characteristics of cyber incidents have become a common Issue not only in Japan but also in the world, and in recent years, cooperation between foreign investigative agencies has been active in order to counter this Issue. information linkages between countries and cooperate with each other within the scope of their investigative authority, and it has been confirmed that there has been a record of takedown of dark web forums and the arrest of hacker groups using specific viruses. In light of this situation, the National Police Agency established the Cyber Police Bureau and the Cyber Special Investigation Unit this spring. The Cyber Police Bureau is promoting efforts to secure and train personnel with specialized knowledge and skills and to strengthen international cooperation with foreign investigative agencies. The Cyber Special Investigation Unit, which directly responds to domestic serious cyber incidents, is promoting investigations while exchanging information with investigative agencies of each country.

  • Member: e-KYC is effective in agreement with the NPA?

    • Speaker: As you are aware, the procedures for identity verification are extremely important. If identity verification is not performed in an appropriate manner, it will be difficult to track down the criminal. In addition, if appropriate procedures are taken, it will have a deterrent effect on those who have the intention to commit the crime. Therefore, we recognize that it is important to establish an appropriate mechanism from the viewpoint of crime prevention. With regard to the efforts in this case, the police will work together with the relevant ministries and agencies and industries to encourage measures.

  • Member: If we think about it in a larger concept, there are various means such as conventional crimes using cryptocurrencies, for example, the governance of FTX is bad, the types of crimes that can only be done with cryptocurrencies can be caught by investigation, they can be suppressed by regulation, and they can be made into a technically impossible structure. Which one is appropriate depends on the object.

  • Member: Stablecoin, and although it is not related to DAO, it has a similar idea. If you make a regulation, you can easily go overseas and use other services. However, there may be cases where it is difficult to control and investigate from the Japanese side. For example, in this case, even in the stablecoin method, when you buy a token, you know that volatility is high, but if it says yen, it seems that there is no volatility. There is a story that stablecoins must be in a bank account, and for example, algorithmic stablecoins are risky because they fall suddenly, and algorithmic stablecoins for yen are risky, so it may be better not to use them. However, for yen stablecoins that are not backed by one to-one algorithm, it may be good if you want to settle for only one second. If you want to keep them in a safe for years, you want to have them safe, but if you want to settle for one moment in a game with yen, the algorithm may be good.

  • Member: If regulation is used to protect stablecoins within the Japanese market, the people who are going to use them in the game will set them up overseas, and the users will also go overseas, making it difficult to control them. Another thing that must be considered is the rational way of thinking when looking at the entire market, when regulation or investigating users and applications that are easy to move to overseas, whether regulation only in the Japanese market will result in more or less damage to Japanese consumers.

  • Member: There is a concept that we must be responsible only for Japanese people, but the Internet, such as DAO, is global in the first place, and we must also take responsibility for Japanese people who go overseas. I think both the crackdown and the regulation are considered from a global perspective, but I don't care about people who have gone overseas. Even if FTX is regulation in the U.S., it will be global when it explodes, such as American consumers suffering a lot in the Bahamas. I think it is moving in a good direction globally, with various coordination, KYC, anti-money laundering measures, and investigations, but the scope of creating various rules is difficult without global consideration, and DEX is difficult to regulation, so we must consider technical improvements. In conclusion, I would like to proceed with just considering how to calculate the risk that if rules and regulation are implemented, people will move overseas, and it will be difficult to crack down on and manage them.

  • Member: , and I don't think it can be ended by responsibility only in Japan. In fact, the Financial Services Agency was strict when it acquired FTX's Japanese exchange, and it instructed that Japanese users at overseas FTX exchange must be managed in the Japanese context. According to an FTX official, more than 90% of FTX users moved to Binance at that time. However, FTX's expansion into Japan by chance had the influence of the Financial Services Agency, and global FTX applied the rules of the Financial Services Agency, which was good for Japanese users as a result. How to protect Japanese users overseas and how to coordinate globally. Coordination with other countries is important, and I think there is policy consistency with other countries, but I would like to ask who is responsible for thinking about the global layer properly, including the market. It is necessary to decide the policy somewhere in the whole and always consider the secondary effect of the policy in the field of view.

  • Member: policy coordination efforts being investigated?

    • Speaker: Since this is not a point that is being investigated at this time, I would like to consider whether it can be included in the subsequent investigation.
    • Speaker: countries implement regulation separately, as is the case with tax system, regulatory arbitrage can occur and produce unexpected results. However, I believe that the problem has already been recognized for a long time. For example, international cooperation has been advanced from various perspectives, such as the FATF from the perspective of money laundering and the IOSCO from the perspective of securities. In the investigation, from a global perspective, although we have different laws, I think that we are cooperating with the investigation by sharing the purpose. Although it is a difficult problem to solve, I would like you to discuss what kind of message should be sent in the report from the perspective that Web3.0 is global from Day 1.
    • Speaker: It is probably not that algorithmic stablecoins are not recognized at all, but they are classified as crypto-assets rather than stablecoins. Whether or not they can be handled by domestic exchange operators is being discussed elsewhere, including the examination process. It is not the case that all things that can be handled globally can be handled by domestic exchange operators, but it is necessary to be aware of the extent to which the study group can be handled, including the part to protect investors and how to consider self-responsibility.
    • Speaker: Supervisory Authority, users can feel secure about the business operator.

  • Member: There is no way to prevent people who want to take risks and do so knowing the risks from doing so overseas. Isn't it a good idea to create a world that is managed in Japan?

    • Speaker: It is important to strike a balance. Unlike traditional financial services, users can easily transact with overseas operators. In such a situation, how to strike a balance between innovation and user protection is a difficult issue, and we are working on it while agonizing over it.

The secretariat explained that the next workshop will be held on Wednesday, December 7.
The secretariat explained that the minutes of the meeting will be published after the members confirm the content.

End