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  1. Introduction

The NEAR Foundation (the “Foundation”) submits this letter in response to the consultation and call for evidence by His Majesty’s Treasury (“HMT”), concerning the ‘Future Financial Services Regulatory Regime for Crypto Assets’[1] in the United Kingdom (“UK”) (“Consultation”). The Foundation believes that a clear and proportionate regulatory framework is essential for the meaningful global adoption of Web3 technology and welcomes HMT’s proactive engagement with industry participants towards achieving this goal.

The Foundation is a Swiss-based regulated non-profit organisation created in September 2019, with a core mission (and legal mandate) of supporting the development and growth of the NEAR protocol (the “NEAR Protocol”) and its associated ecosystem (as well as the global adoption of open-web technologies more generally). The NEAR Protocol is a permissionless, open source, decentralised, proof-of-stake blockchain network.[2] There are more than 550,000 participants in the NEAR Protocol ecosystem, including over 4,000 developers and 1,000 projects building on the NEAR Protocol.

A key aspect of the Foundation’s mission is advocating for clear, fair, and proportionate regulation of Web3 technology, and we recently publishedPolicy Principles[3] setting out the core values driving our advocacy work. We believe that the policy outcomes advanced by HMT are reasonable and capable of being achieved in the Web3 context with the right approach (i.e. regulatory equivalence is possible). In fact, we believe that many of Web3’s core characteristics (particularly decentralisation, disintermediation, transparency and immutability) make it uniquely well-suited to effectively achieving these policy outcomes. 

The Consultation comes at a key crossroads for Web3 in general and Decentralised Finance (“DeFi”) more specifically. While DeFi currently represents a small fraction of the Traditional Finance (“TradFi”) markets, its potential for growth and broader positive impact is significant. As of January 2023, total volume on decentralised exchanges (“DEXes”) (a proxy for the total DeFi market cap) stood at $56 billion,[4] compared with the total value of traded shares on the largest exchanges worldwide of $41.8 billion as of June 2022[5]. As of 2022, there exists roughly 4.8 million DeFi users globally, and within Europe, the UK is marked as the most prominent DeFi player.[6] Beyond DeFi, UK’s cryptoasset activity is significant, with the UK occupying a place among the top 20 nations with high adoption of crypto activity.[7] 

Given its comparative infancy, DeFi offers an opportunity for regulators to establish  proportional, adaptable, and clear regulatory frameworks that attract investment, job creation, and innovation to the UK and ultimately position the UK as a leader in the evolving DeFi landscape.

  1. Chapter 11 Responses

36. Do you agree with the assessment of the challenges of regulating DeFi? Are there any additional challenges HM Treasury should consider?

 The Foundation broadly agrees with the challenges of regulating DeFi listed by HMT in the Consultation.[8] When compared to TradFi, DeFi raises different risks, involves different actors, and engages different policy considerations. While DeFi systems can be built to replicate the functional result of some existing TradFi activities, DeFi and TradFi use different technology and employ different legal and social/incentivisation arrangements. A different regulatory approach is therefore required.

This different regulatory approach is likely to, and should at least in many respects, share the same principles and goals as existing TradFi regulation. However, it is essential for any effective DeFi regulatory framework to recognise and facilitate DeFi’s unique features (particularly decentralisation and disintermediation). Failure to do so risks stifling innovation and undermining the very policy objectives HMT is seeking to achieve.

At a fundamental level, TradFi relies on rights and obligations defined by external legal contracts and laws, while DeFi operates on the basis of powers and incentives defined by internal deterministic peer-to-peer or peer-to-software systems. These are fundamentally different approaches to solving the problem of trust in transactions, with different risk profiles and regulatory outcomes.

It is also important to note that while DeFi can be built to replicate certain TradFi activities, DeFi can be structured to operate in a fundamentally different way to achieve those outcomes. For example, consider a ‘transaction’ in the DeFi context. Even a very basic DeFi transaction – e.g. transferring cryptoassets from one cryptoasset wallet to another – involves several different actors (end-user(s), network miner/validator, network relayer, and possibly many others depending on the underlying blockchain network and the apps/services which the end-user opts to use) and complex technological processes (broadcasting a signed data package to a network’s memory pool (“Mempool”), selecting data packages/transactions from the Mempool by network miner/validators based on cryptoasset incentive structures, creating of new network blocks etc.).

Consider further a ‘lending’ transaction in the context of a DeFi interest rate protocol. Although the term ‘lending’ is broadly used and easily understood in common parlance, it misrepresents the economic activity that these protocols enable. Users of these protocols “do not extend credit or incur debt, which are the essential characteristics of a loan transaction,”[9] and instead earn interest securely through overcollateralization and free market liquidation, not through lending. While collateralization exists in both DeFi and TradFi, the latter still depends on credit and debt relationships, making DeFi ‘secured loans’ fundamentally different from TradFi.  Moreover, DeFi interest rate protocols are permissionless — enabling pseudonymous participation — and employ a “peer-to-pool” model, making it hard or impossible to directly identify borrowers. Because DeFi transactions are conducted on a “peer-to-pool” or “peer-to-protocol” basis, meaning users supply and borrow fungible assets to and from a pool of liquidity stored within the protocol, not to and from specified counterparties, suppliers rely on overcollateralization and liquidation to ensure that they can withdraw their assets at any time, and not on trust of a counterparty.

Grafting the language and concepts of TradFi onto Defi — including by mislabeling DeFi transactions as loans — can lead to misunderstandings and muddy the distinction between DeFi and TradFi, making it difficult for regulators to design appropriate and proportionate frameworks for DeFi. Any comparison of DeFi to TradFi should therefore carefully analyse the different participants, systems, technologies and risks involved.[10] 

We broadly agree with the different characteristics of DeFi identified by HMT in the Consultation. We wanted, however, to highlight two of DeFi’s defining characteristics that are particularly relevant from a regulatory perspective and should inform any proposed cryptoasset regulatory framework:

Decentralisation and dis-intermediation in DeFi have the potential to offer powerful advantages over TradFi, creating robust systems that can enable a more secure, transparent, and efficient financial landscape. Key benefits of DeFi include reduced information asymmetry, increased transparency, faster settlements, enhanced liquidity, innovation enablement, streamlined processes, automation, lower transaction costs, and improved user control. By leveraging these attributes when regulating DeFi, HMT can fulfil its overarching objectives of fostering innovation, encouraging growth and competition while protecting the market and its users. Moreover, DeFi has the potential to benefit a wider range of participants and surpass some of the known limitations of TradFi.[12] 

By way of example, the recent collapse of FTX (previously one of the largest centralised cryptoasset exchanges in the world) has exposed the risks and challenges of centralised actors in the cryptoasset space. As an initial matter, customers did not control or self-custody their assets at FTX (and the use of customer funds by FTX remains at issue).[13] FTX was also a highly centralised organisation, with most of its control and decision-making allegedly concentrated in the hands of its founder and former CEO, Sam Bankman-Fried, and other key individuals.[14] FTX also had a close and opaque relationship with Alameda Research, a trading firm also run by Bankman-Fried, which held a large position in FTT, the native token of FTX.[15] FTX offered bundled service offerings, such as derivatives, futures, options, and leveraged tokens, which increased its complexity and risk exposure.[16] FTX faced a liquidity crisis, a possible hack, and criminal charges against Bankman-Fried and FTX’s subsequent collapse significantly impacted many other centralised cryptoasset actors.  

By contrast, DeFi networks and systems have demonstrated their resilience and strength during this market shock. As J.P. Morgan noted in a weekly report following the FTX collapse: “while the news of the collapse of FTX is empowering crypto sceptics, we would point out that all of the recent collapses in the crypto ecosystem have been from centralised players and not from decentralised protocols”.[17] Moreover, the turmoil in centralised exchanges wrought by the FTX collapse reinforced the clarion call for self-custody embodied by the crypto ethos of “not your keys, not your coins”, leading market participants to seek out decentralised alternatives.[18] 

We note that a large part of HMT’s focus in the Consultation is on centralised cryptoasset actors and intermediaries, and we believe this is appropriate because it is in the context of large centralised actors that systemic risks are most likely to arise, engendered by (for example) the potential for conflicts of interest, anti-competitive behaviours (including market manipulation), and a lack of transparency. Similar risks can potentially exist in the DeFi context where some projects might be less decentralised and/or dis-intermediated because (for example) certain forms of intrinsic network power are concentrated in the hands of a small number of actors. This could lead to potentially harmful concentrations of power within DeFi networks which we believe are an appropriate focus for regulation (and which the disclosure and registration approaches to regulation described below are intended at least in part to mitigate).

Regulators and academics along with the Web3 and DeFi industry globally have been considering how best to protect against the potentially harmful concentrations of power discussed above (particularly in the early stages of a network’s development) while still facilitating and protecting DeFi’s unique features and ensuring that responsible innovation can continue to take place.

Some examples that are already being explored and could serve as a useful starting point to any Financial Services and Markets Act 2000 (“FSMA”)-based registration and disclosure regime include: (i) a tailored ‘lite’ registration and disclosure regime for cryptoasset issuance by initial development teams (which could serve as a ‘lite’ version of a FMSA-based registration & disclosure regime for cryptoassets); (ii) a safe harbour regime; (iii) self-regulatory approaches; (iv) new technologically-mediated approaches to disclosure such as Disclosure non-fungible tokens (“NFTs”) and Decentralised Autonomous Organisations (“DAOs”).

Before looking at examples of each of these potential approaches in more detail, it is worth noting in what follows that we focus on approaches emphasising disclosure and reporting, rather than authorisation-based approaches. This is driven by the fact that DeFi’s decentralised character gives rise to novel jurisdiction issues, given that the potentially large and constantly fluctuating body of network participants can be operating from multiple (and constantly fluctuating) jurisdictions; for which there is no direct analogue in the TradFi context.  

We would therefore caution HMT against implementing an authorisation-based regime in the DeFi context because in our view that would risk: (i) requiring network participants to go through the (potentially complex and costly) exercise of determining whether certain DeFi-related activities in certain jurisdictions require authorisation, thereby potentially creating ‘moats’ where only more sophisticated, well-resourced actors can participate in DeFi systems; (ii) requiring DeFi projects to evaluate potential authorisation requirements across a large (and constantly fluctuating) number of jurisdictions in a way that TradFi projects do not; and (iii) perhaps most importantly of all, compromising DeFi’s inherently permissionless, cross-border nature and so undermining decentralisation and dis-intermediation.

Instead, we believe that a tailored disclosure and registration regime would help to preserve DeFi’s unique features (decentralisation and dis-intermediation) while also reducing information asymmetry, and enhancing transparency and the UK’s attractiveness as a jurisdiction for DeFi entrepreneurs, projects and investors.

38. Do you agree with HM Treasury’s overall approach in seeking the same regulatory outcomes across comparable “DeFi” and “CeFi” activities, but likely through a different set of regulatory tools, and different timelines?

We broadly agree with HMT’s overall approach. We refer to our answer to question 36 above, and in particular would emphasise the fact that any comparison of DeFi to CeFi/TradFi should be approached with caution on the basis that such comparisons are a useful heuristic but do not capture and risk obscuring DeFi’s qualitative differences. We believe that it is possible to achieve HMT’s desired overarching policy objectives — innovation, competition, consumer protection, financial stability and market integrity — in the DeFi context provided any regulatory framework proposed by HMT reinforces (rather than undermines) DeFi’s essential features.

Indeed, it is these essential features that make DeFi a potentially more effective substrate for achieving policy objectives than TradFi — given features like transparency, auditability, decentralisation, and disintermediation can be built in and deterministically enforced by smart contracts in a trustless (or significantly trust-minimised) manner — which, in turn, can create an environment where financial regulations can be applied and monitored more efficiently and effectively.

As we have noted above, opting for a ‘tech-agnostic’ approach in regulating DeFi presents obvious challenges and limitations, such as creating a framework that may not fully recognize or accommodate DeFi’s technical idiosyncrasies, or fails to provide adequate certainty for market participants. To address these challenges, policymakers and regulators should craft adaptive and flexible regulations suited to the unique characteristics of DeFi while working to keep pace with its technological advancements. This approach will help ensure that the regulatory framework remains effective and supportive of DeFi’s future development, ultimately promoting a robust, transparent, and secure DeFi ecosystem, which will evolve with DeFi technology and mature over time. Further details on our suggested approach below.

Tailored Disclosure Regimes

Improved and tailored disclosure in DeFi would be an important first step towards greater protection of DeFi participants. As an initial matter, it is important to recognise that disclosure in equity markets is ill-suited to elicit material information for token purchasers because such disclosure does not “cover a number of features unique to digital assets that would undoubtedly be considered important when making an investment decision”.[19] Instead, traditional disclosures are “designed for traditional corporate entities that typically issue and register equity and debt securities” and “focus on disclosure about companies, their management, and their financial results”.[20]  Tailored disclosure regimes exist elsewhere, for example, with respect to asset-backed securities.[21] 

Several models for bespoke cryptoasset disclosures already exist. There have been domestic and international legislative proposals, such as European Markets in Crypto-Assets (MiCA) legislation,[22] recent bills in the US Congress,[23] the safe harbour proposals set out below, and other proposals by academics and lawyers including those referred to in this response.

Potential disclosure elements for DeFi platforms could incorporate governance tokenholding data and any changes to this data (like listed equity holdings), and information about admin keys or other centralised controls, their scope, and arrangements. Additionally, such disclosure can include information regarding source code, token economics(e.g., asset supply schedule or protocol governance), information regarding the development team, network development plan, prior token sales, and trading platforms listing the tokens.[24] Another related element could require ongoing reporting of decentralisation efforts. This could encompass a variety of areas, such as the distribution of network nodes or the degree of participation from community members.

Another important aspect of disclosure could centre around the technology component of each network. This could include regular code audits to ensure that the technology is secure, reliable, and able to perform its intended function. Additionally, the governance of the token could be subject to voting audits to ensure transparency in the decision-making process of each network. In some cases, financial reporting could also be required under a disclosure-based regime. This could include the provision of proof-of-reserves to demonstrate that the network has sufficient funds to back its operations, as well as the disclosure of revenue and expenses to provide insight into the financial health of the network.[25] 

Mandated disclosures should also include a set of risk factors for the review of participants in DeFi, including risks such as regulatory, cybersecurity, operational, liquidity, smart contract, and interoperability risk. Such risk factors should be informed by guidelines crafted for DeFi that are similar to the European Securities and Market Authority ‘Guidelines on risk factors under the Prospectus Regulation’[26] and the Financial Conduct Authority’s Prospectus Directive under FSMA,[27] and may be crafted both by regulators or in connection with potential self-regulatory initiatives discussed below.

Potential Safe Harbour Approaches

A potential safe harbour could provide numerous benefits by fostering innovation and flexibility alongside regulatory certainty (and could incorporate elements of the tailored disclosure regime referenced above). It has the added advantage, as compared to sandbox approaches, of providing a clear rules-based framework to the industry that is applicable in the same way for all actors (while sandboxes are typically more discretionary in how they operate and so can often have a more limited scope; although in our view sandboxes do also have their merits). Several proposals have been made along these lines that are worthy of consideration and although they were not drafted with the UK regulation in mind, they are good source of information to guide HMT’s approach: (i) Hester Peirce’s “Token Safe Harbor Proposal 2.0” published in April 2021[28]; (ii) the Responsible Financial Innovation Act (“RFIA”)[29]; and (iii) LeXPunk’s “Safe Harbour X/Reg X”[30]. All of these approaches could also include a cross-border or interoperable sandbox approach.

SEC Commissioner Hester Peirce’s Token Safe Harbor Proposal 2.0 provides a time-limited exemption for cryptoassets, affording initial development teams a three-year period to establish their networks as functional or decentralised, while exempting them from US federal securities registration. The exemption would continue to apply provided that the developer (i) complied with anti-fraud rules, (ii) provided semi-annual updates to the plan of development disclosure and a block explorer and (iii) made certain disclosures, including an explanation of governance mechanism for implementing changes to the protocol); a block explorer, and sufficient information for a third party to create tools for verifying the transaction history of the token. Lastly, upon the cessation of the grace period, the developer would be required to draft and disclose an exit report explaining why the network is sufficiently decentralised and the token is not a security (or otherwise register the token as a security).

An analogue of the Token Safe Harbor Proposal 2.0 is the Safe Harbor X proposal by LeXpunK Army —  a community of lawyers and technologists who advocate for decentralised and peer-to-peer protocols — published in April 2022, which aims to address three key issues that the authors believe have impeded the adoption of Commissioner Peirce’s proposal:

  1. The proposal’s focus on tokens without distinguishing between different types of transactions.
  2. The wide-ranging exemption covering the entire three-year network maturation period.
  3. The risk of regulatory arbitrage and unfair advantages for traditional or incapable issuers.

SafeHarbor X aims to address these concerns by modifying the approach in three key ways:

  1. Focusing on exempting “qualifying distributions” of tokens to users and builders, rather than the token itself, allowing regulators to address potential abuses or unanticipated issues.
  2. Requiring eligible projects to be permissionless, open source, autonomous ‘public goods’ software to qualify for the exemption.
  3. Mandating an initial development team to be subject to a 12-month post-public-launch lockup for their autonomous crypto tokens, similar to the holding period for restricted securities under Rule 144.[31]

LeXpunK have also proposed a targeted disclosure and registration regime called Regulation X (“Reg X”)[32], which is designed to work alongside the SafeHarbor X proposal by affording projects that are not able to meet its (deliberately) strict requirements. The proposed Reg X offering exemption allows token projects to raise up to $75 million from accredited investors and up to $15 million from non-accredited investors in a 12-month period, subject to certain disclosure,anti-fraud requirements, and trading restrictions. The disclosure requirements include providing information about the network, its purpose, development plan, token economics, governance, risk factors, and insiders. The secondary market beneficial ownership reporting regime would require persons and groups who constitute large holders at the time of offering requiring them to file reports where ownership thresholds are exceeded and exit reports where holdings drop below the reporting threshold. Additional disclosures regarding extrinsically affiliated persons are also expected to be developed under the proposed framework, as well as to comply with certain trading restrictions and reporting obligations.The anti-fraud requirements require projects to comply  with the federal securities laws and regulations, as well as adopt a code of conduct and dispute resolution mechanism.

The trading restrictions include limiting the amount of tokens that can be sold by insiders and affiliates in any 90-day period, and requiring them to file a notice of their intended sales with the SEC. The reporting obligations include filing annual and quarterly reports with the SEC, as well as disclosing any material events or changes that affect the network or the tokens.[33]

By contrast to the Safe Harbor 2.0 and Safe Harbor and Regulation X proposals, the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA)[34] aims to establish comprehensive disclosure requirements for ancillary assets[35] and their issuers. It mandates a one-year period following the submission of disclosure, during which issuers must detail their plans to support or discontinue the use and development of the ancillary asset, as well as information about markets and platforms utilising the asset.

Both of these proposals should be analysed in the context of US security laws and its unique applications (and, in particular, the classification of cryptoassets for the purposes of US securities laws which has proven to be an extremely complex and somewhat controversial issue in the jurisdiction). The RFIA necessitates extensive corporate information about the issuer, including their history, experience, legal proceedings, and risk factors associated with the ancillary asset. While it shares some commonalities with Hester Peirce’s Token Safe Harbor Proposal 2.0 in terms of promoting transparency and addressing regulatory challenges, the RFIA has a broader scope and encompasses various aspects related to ancillary assets, including ownership information and related person transactions.

HMT could also consider encouraging the adoption of a cross-border sandbox for DeFi. For example, the FCA is part of the Global Financial Innovation Network (“GFIN”)  — a collection of 20 regulators from countries including the UK, Canada, USA, and Australia — enabling firms to test innovative financial products, services, business models or regulatory technology. The GFIN model has not proven easy to implement. Indeed, in its first cross-border testing cohort, a total of 38 applications were received with only two firms successfully taking forward propositions to the live testing phase given the failure to implement testing plans that satisfied each jurisdiction’s criteria. Accordingly, it is crucial that any cross-border or interoperable sandbox format be attempted first with jurisdictions that are taking a similar approach to the DeFi space.

Within a cross-border sandbox or collaborative law-making framework, regulators  could work together to clarify the treatment of various DeFi components, such as DAO frameworks[36], decentralisation models, risk factors and other disclosure requirements, KYC requirements, and the treatment of proof-of-stake versus proof-of-work networks.[37] 

The safe harbour and cross-border sandbox approaches referenced above can be a valuable addition to any FMSA-based registration and disclosure regime for cryptoassets. Similarly, a RegX type approach serves as an intriguing ‘lite’ version of the same registration and disclosure framework that can facilitate access to capital for innovative DeFi projects. These methods are promising and potentially effective ways to achieve desired policy outcomes while fostering responsible innovation in the crypto space. By incorporating these approaches, regulators can promote the development of new, groundbreaking technologies in the cryptoasset ecosystem in a responsible and compliant manner.

Self-Regulatory Approaches

The self-regulating nature of DeFi protocols also makes them well-suited to governance by self-regulation, whether in a traditional or DAO form. Such a self-regulatory body could, among other things,  establish disclosure standards for DeFi to promote investor protection. These standards could include, for example, disclosure standards regarding the operation of any DeFi protocol and potential risks to users, standards relating to decentralised governance, decentralisation policies, terms of service and terms of use, risk assessment, safety modules and self-insurance, open source standards, and listing standards that seek to limit accessibility.

Technologically-mediated approaches to disclosure

Technologically-mediated approaches to disclosure also present new opportunities for developing methods of verifying knowledge for DeFi participants. In his article “Introducing Disclosure NFTs, Disclosure DAOs, and Disclosure DIDs”[38] and “Disclosure, Dapps, and DeFi”,[39] Professor Christopher Brummer introduced two technologically-mediated approaches to DeFi disclosure of particular interest, both of which draw upon DeFi’s unique strengths: (i) disclosure NFTs or decentralised identities (DIDs) and (ii) disclosure libraries.

Disclosure NFTs can be employed to validate a user’s engagement with and understanding of the available disclosures. Users would interact with the available disclosures by reading or navigating through them and then complete tests or games designed to assess their comprehension. Upon successful completion, unique disclosure tokens would be issued, serving as proof that the user has thoroughly engaged with and internalised the relevant disclosures. These tokens, stored in the user’s digital wallet, could offer additional benefits, such as governance rights or access to specific services within the project, further incentivizing users to engage in the disclosure process.

DeFi disclosures could also be linked to unique decentralised identifiers (“DIDs”) tied to a given individual. A DID is a unique text string that links an individual or entity to a set of data (“DID Document”) describing them. This data contains public keys, verification methods, and ways to communicate or interact with them, including network addresses like HTTP URLs. The DID Document acts as an authentication tool for the person or entity and helps build trust in their interactions. Upon completing disclosure comprehension, an individual’s DID could be provisioned with a credential to verify successful engagement. This credential can be stored off-chain in a personal datastore, wallet, or integrated into a digital driver’s licence as part of the individual’s disclosure DID. The information would be self-sovereign, granting the holder control over data access and usage.

Decentralised Apps (“Dapps”) could verify delivery and engagement with disclosure, which may occur off-chain as in the Disclosure NFT example. Once confirmed, users can transact on the Dapp or others with similar risk profiles or disclosures, creating a decentralised, immutable chronological event record providing metadata related to past disclosure engagement.

Disclosure Libraries aim to create a more collaborative and accessible environment for developing DeFi-specific disclosures, built as an online repository. Disclosure libraries could function as a platform where developers, lawyers, and nonprofits come together to access, share, and contribute to open-source disclosures for Web3 applications. These disclosure libraries could also form a repository for DeFi self regulatory initiatives efforts. These libraries would lower the entry barrier for startups, reduce development costs, and foster a culture of transparency, collaboration, and shared expertise within the ecosystem. The LeXpunK github repository on open source law, which includes open source templates and other materials for DAOs, is an example of how such a library could be structured.[40]

39. What indicators should be used to measure and verify “decentralisation” (e.g. the degree of decentralisation of the underlying technology or governance of a DeFi protocol)?

We refer to our response to question 36 above.

As discussed above, decentralisation is most appropriately defined as the distribution of various types of intrinsic network power across participants in DeFi systems. A thorough understanding of decentralisation is essential for crafting an effective DeFi regulatory framework, as the nature and level of decentralisation fundamentally alters the number, nature and distribution of participants, and the way DeFi systems operate.

There are various types of intrinsic network power, including:

Validator Power: The power to read or access a blockchain network’s data. The validator power in open, permissionless blockchain networks is typically quite decentralised because the data is freely available to anyone (but this might not be the case in private, permissioned blockchain networks which we are not considering in our responses here). The more decentralised the validator power, the less likely any single validator can control or manipulate the network, leading to reduced risks of fraud or collusion. Elements that can be assessed to evaluate the decentralisation of validator power include node count and distribution of ownership of these nodes..

Consensus Power: How agreement is reached among network participants on the validity of transactions and the overall state of the blockchain, including the power to write data to the blockchain in what is typically a two step process of (a) proposing a block; and (b) that proposed block being accepted by the other network nodes because it is consistent with the network’s consensus mechanism. Decentralisation in consensus power ensures that no single entity can dictate or manipulate the decision-making process, resulting in a robust and secure network.

Protocol/Client Power: Protocol/client power refers to the control over the protocols and software clients used in DeFi networks. Decentralising protocol/client power through open-sourcing mitigates the risks of single points of failure, monopoly power, or a centralised entity driving the direction of the network without consideration for its users and stakeholders.

Governance/User Power: This pertains to the influence users and stakeholders have over the rules, policies, and decision-making within a DeFi network. A decentralised governance structure, where users have a say in shaping the network’s future, ensures a more inclusive, democratic, and responsive system, which better aligns with the interests and needs of its participants. Related to governance and user power is contributor diversity, referring to the number and variety of developers who contribute to the source code of a DeFi network. A higher contributor diversity indicates a more decentralised software development process and reduces key person or team risk arising from dependence on a single developer or a core team.

We note that there is not yet a standardised or industry-accepted set of standards for evaluating and/or verifying decentralisation, although there have been and will no doubt continue to be efforts to create a standardised framework.[41] The various disclosure approaches outlined in this response would be extremely helpful in this regard by helping to enhance transparency and reduce information asymmetry. As discussed above, we agree with HMT’s observation that decentralisation exists on a spectrum; and we would stress that, although some projects may claim to be decentralised when they are not, this does not mean that no projects are genuinely and substantially decentralised. We refer to our response to question 36 and, in particular, our discussion with respect to the critical role that decentralisation (and dis-intermediation) plays in mitigating potentially harmful concentrations of power in DeFi networks/systems.

Relatedly, we acknowledge HMT’s observation that once certain DeFi networks/systems (or elements or those networks/systems) reach a certain level of decentralisation then they may not be practical to regulate. This is a significant observation because in our view: (i) it highlights that an authorisation-based regulatory approach to DeFi might risk being too inflexible to cater for this type of ‘transition’ as compared to a disclosure-based approach; (ii) it recognises the importance of decentralisation as a critical feature of DeFi networks/systems that qualitatively distinguishes it from TradFi, with different regulatory consequences; and (iii) decentralisation in this manner provides various consequential benefits to DeFi system components (as we have already described above – including increased transparency and reduced information asymmetry) that can ensure desired policy outcomes are still maintained even in the absence (or impracticability) of traditional regulation.

  1. Chapter 12: Other Crypto Asset Activities (Miners and Validators)

44. Is there merit in regulating mining and validation activities in the UK? What would be the main regulatory outcomes beyond sustainability objectives?

We broadly agree that there could be some merit in bringing certain types of mining/validation activities within the scope of a suitably targeted, light-touch disclosure-based regulatory regime. However, as with any other element of a DeFi network/system, great care has to be taken to ensure the specific technical details and idiosyncrasies are being appropriately taken into account — along with related opportunities and risks — when bringing any regulatory framework to bear.

At the outset, it is important to highlight that mining (in proof-of-work networks) and validation (in proof-of-stake networks) activities take many different forms with different technological implementations. What is consistent across all of these forms is that mining/validation processes typically play an absolutely essential role in the functioning of a DeFi system (and blockchain networks more generally) via a host of processes including, for example, proposing new blocks for addition to the blockchain, choosing which transactions to include in proposed blocks, accepting or attesting proposed blocks, receiving block rewards and/or transactions fees and (taking these various processes together) maintaining network security. These processes are typically embodied in and form an integral part of crypto asset-based incentive frameworks that are deterministically enforced.

Given the vitally important role that mining/validation activities play in DeFi (and other cryptoasset) networks and systems, great care should be taken to ensure that any proposed regulatory approach does not inhibit these activities, and in so doing stifle innovation or create uncertainty for market participants.

It is also important to note that discussing ‘mining and validation activities’ writ large or as a monolithic category risks missing various critical technical, operational, and risk profile differences that should inform the regulatory approach. First and foremost it is important to situate these functions within the specific consensus mechanism and network in question. Proof-of-work and proof-of-stake are two different consensus mechanisms used in blockchain technology. Proof-of-work involves miners solving complex mathematical problems to validate transactions (most notably, Bitcoin), while proof-of-stake involves validators holding a certain amount of cryptocurrency and using it as collateral to validate transactions (NEAR Protocol, Polkadot, Ethereum, etc).[42] The Foundation’s focus will be on proof-of-stake networks, given that the NEAR Protocol is a layer-1 proof-of-stake network.[43]

Validation activities

        A validator in a layer-1 network is a key role. Validators stake their cryptoassets in a shared pool[44] and then analyse blocks based on the rules set by the network and receive rewards in the form of network fee for verified transactions.[45] The network rewards can vary based on the amount of cryptoassets staked in the validators pool (generally with the more cryptoassets staked the higher the rewards). Each network determines its own reward and commission fee structure, which is generally enshrined in the deterministic rules of the network.[46] 

Consider further the following high-level examples of different types of validation activities:

  1. Single participant running a validator node. A participant operates their own validator node, contributing their resources to maintain network security and earn rewards in return.
  1. Delegated staking. Users delegate their cryptoassets to a trusted validator, who then stakes on their behalf, generally sharing the rewards and risks proportionally.
  1. Pooled staking. Participants pool their tokens together to create a shared validator node, distributing rewards and risks among the group based on each individual’s stake.
  1. Custodial staking. Users entrust their tokens to a third-party custodial service, which stakes on their behalf and manages rewards and risks, often for a fee.
  1. Liquid validator staking. Users stake their cryptoassets through a smart contract, with such staking contributions themselves made freely transferable (often in tokenised form), providing liquidity while still participating in staking.

These (and other) categories of validation activities clearly function very differently and present different potential risks. Across all of these categories however it is crucial to recognise that validation activities are typically controlled by the underlying networks and protocols, which utilise complex technical and cryptoasset-based incentivisation structures. Such structures are generally pre-determined and can be deterministically enforced, providing full transparency to all network participants.

Given the vitally important role that validator activities play in DeFi networks and systems, regulators should exercise great care when proposing any approaches to avoid unduly restraining these activities, stifling innovation, or creating uncertainty for market participants.

Collective Investment Scheme (“CIS”)

One potential source of uncertainty for UK-based DeFi participants in the UK arises in connection with certain types of mining or validator activities and the definition of ‘Collective Investment Scheme’ under section 235 of the FSMA.[47] The definition includes arrangements with respect to property (including money) that allow participants to engage in or receive profits or income that stem from the acquisition, holding, management, or disposal of property, or sums paid out of such profits or income. The arrangements falling under the CIS definition must be such that the persons who are to participate (“Participants”) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions. They must also have the following characteristics: (i) the contributions of the Participants and the profits or income out of which payments are to be made to them are pooled, and (ii) the property is managed as a whole by or on behalf of the operator of the scheme.

Presently, it is extremely unclear the extent to which different types of mining and validation activities — particularly pooled validator staking — might fall within the CIS definition. The current definition of CIS may not be suitable for DeFi practices primarily because: (i) it predates blockchain technology and therefore it is unable to address the nuanced aspects of decentralised technology; and (ii) it is a definition unique to the UK which focuses on scenarios where capital or assets are pooled and entrusted to third parties with significant investment discretion, which is not the case in DeFi. Moreover, with the borderless nature of blockchain technology in general, and permissionless nature of DeFi in particular, it would be challenging to pigeonhole validating activities under CIS. Schemes within the scope of s.235 are generally more centralised with a significant potential for abuse of power and conflicts of interest concentrated on a small number of people responsible for investment decisions (amongst other issues), as well as the fact that typically such ‘products’ are highly illiquid and/or carry significant risk.

In the context of pooled validator staking, the risks present in TradFi do not apply because validation activities contribute to network functioning and security, rather than passive capital contribution as is the case under a CIS, and compensation for that work is often pre-determined and deterministically enforced by the relevant network or smart contracts (rather than dependent on the efforts or discretion of others).[48] Indeed, the discretion offered to a manager under a CIS is different to the narrow role of a validator in a proof of stake network that can be deterministically enforced on-chain through cryptoasset based incentivization structures to protect mining and validation function in networks. Regulation should not interfere or jeopardise the inherent on-chain cryptoasset-based incentivization structures that protect mining and validation functions within networks. Also, creating barriers to entry for staking could potentially concentrate validation power into the hands of a smaller number of well-resourced validators, negatively impacting DeFi’s key characteristics: decentralisation and dis-intermediation. We suggest that HMT considers exercising its power to carve-out pooled validator staking arrangements from the CIS definition, which would help promote certainty, encourage decentralisation, and support HMT’s overarching policy objectives.

More generally, in our view any proposed approach to regulating mining and validation activities should focus on addressing potentially harmful concentrations of power – for example, where a large amount of a DeFi network’s consensus power is concentrated in the hands of a small number of actors, sometimes termed ‘validator dominance’. As with the other forms of potentially harmful concentrations of power in DeFi systems, validator dominance can reduce transparency and competition, and also raise consumer protection risks.

A regulatory approach to tackle these potential risks  could involve a light-touch disclosure regime targeting validators operating at a certain scale, by way of a business. Disclosure requirements could be congruent with policy principles, ensuring that the regulatory environment remains conducive to the growth and development of DeFi networks and their participants.

The eventual disclosure requirements could be designed by a joint regulator and self-regulatory initiative, and could include: (i) basic information about validators such as their identity, location of nodes, stake amount, uptime, security measures, technical specifications and performance metrics of the validator’s hardware and software; (ii) a standard set of risk factors applying to validators; and (iii) any fees/commission charged by validators. As mentioned above, in order to avoid potentially stifling validation activities or creating barriers to entry for individual network participants, we would suggest that any such regime should only apply to validators operating at scale and by way of a business (i.e. as a service offering to end users).

Maximal Extractable Value (“MEV”)

MEV refers to the profit that network miners and validators can obtain by strategically ordering or including transactions in the blocks they mine or validate within a blockchain network. MEV arises due to the decentralised nature of blockchain networks, where transactions are not processed simultaneously and miners/validators have some degree of control over transaction ordering in a block. HMT has identified MEV as an area of potential consideration.

MEV is a critical component of DeFi systems (and blockchain networks more generally) because it underpins and typically forms an integral part of cryptoasset-based incentive structures which are designed to maintain and reinforce (amongst other things) the security and consensus of blockchain networks. MEV is also a highly nascent issue with very little data to inform the long-term impact of different types of MEV activities and strategies. Any regulation of MEV should therefore be carefully considered.[49] 

At a high level MEV-based activities or strategies are typically categorised by industry participants into so-called positive (value-add) and negative (potentially harmful) strategies.

  1. Positive (value-add) MEV strategies. These strategies are generally seen as beneficial or neutral to the network and its participants. They involve miners/validators extracting value without negatively impacting other users or the overall ecosystem. Examples of so-called positive MEV strategies include: (i) transaction prioritisation (transactions with higher fees are prioritised, which helps maintain a free market and the network’s incentivisation system); and (ii) arbitrage (exploitation of price differences across different cryptoasset markets, contributing to market efficiency).
  2. Negative (potentially harmful) MEV strategies. These strategies can potentially have adverse effects on the network and its participants, raising (amongst other things) consumer protection risks. They involve miners extracting value at the expense of other users or manipulating the network in a way that undermines its trustworthiness and efficiency. Examples of so-called negative MEV strategies include: (i) identifying lucrative transactions and replicating them before they are finalised on-chain, thereby capturing that value; and (ii) front-running (deliberately placing transactions before and after another transaction in an attempt to influence pricing of relevant cryptoassets).

There are already various efforts underway by industry participants to attempt to mitigate so-called negative MEV strategies, including:

  1. MEV Auctions (e.g. Flashbots). Flashbots is a research organisation[50] that focuses on addressing the negative externalities of MEV. They have introduced a system called MEV-Geth, which enables miners to participate in sealed-bid auctions for transaction ordering rights. Users can submit their transactions directly to miners along with a bid representing the tip they are  willing to pay. This system creates a more transparent marketplace for MEV, reducing the likelihood of potentially harmful strategies.
  2. Fair Sequencing Services (“FSS”). Fair Sequencing Services[51] is a proposal to modify the way transactions are ordered within blocks. Instead of miners having complete control over transaction ordering, an FSS provider would decide the order based on predefined rules or algorithms that aim to reduce the potential for negative MEV strategies. FSS can be combined with other solutions like commit-reveal schemes, where users submit encrypted transactions that are revealed and processed only after a specific time, reducing the possibility of potentially harmful MEV strategies being deployed.
  3. Transaction Privacy Solutions. Privacy-enhancing technologies, such as zero-knowledge proofs and confidential transactions, can help obscure transaction details and make it harder for miners to identify and potentially exploit MEV opportunities.

As we identified above, MEV can play a vital role in DeFi networks and is a complex, nascent area. There is also very little data regarding the impact of different MEV activities/strategies and the potential issues to which they give rise. Therefore at this stage we do not believe any regulatory intervention by HMT would be wise or desirable (although that does not mean there may not be scope for regulatory intervention in the future). Instead, we would suggest that HMT continues to monitor the MEV environment and consider revisiting the area once there is more clarity regarding the longevity and impact of different MEV activities and strategies.

45. Should staking (excluding “layer 1 staking”) be considered alongside crypto asset lending as an activity to be regulated in phase 2?

Staking refers to a range of activities that involve locking up crypto assets in DeFi platforms or applications to earn rewards, such as provision of liquidity, yield farming, or other token-based incentives. These staking activities differ from layer 1 staking, which as described in more detail in our response to question 44, is the process of securing a blockchain network by validating transactions and creating new blocks. Staking in DeFi platforms or applications often involves complex mechanisms and contracts that expose participants to various types of risks, such as counterparty risk (the risk of default or fraud by the other party), liquidity risk (the risk of not being able to withdraw or exchange the staked assets), market risk (the risk of price fluctuations or volatility), and technology risk (the risk of hacking, bugs, or errors in the platform or application).  

So-called cryptoasset ‘lending’, on the other hand, involves the ‘lending’ and ‘borrowing’ crypto assets through platforms that use digital assets as collateral (we would emphasise again – as already noted in our response to question 36 – that any comparison of DeFi to CeFi/TradFi (and the use of TradFi terms to describe certain DeFi processes) should be approached with caution on the basis that such comparisons are a useful heuristic but do not capture and risk obscuring DeFi’s qualitative differences). This activity allows borrowers to access capital without selling their crypto assets and enables lenders to earn interest on their idle assets. However, cryptoasset lending also entails risks, such as collateral risk (the risk of insufficient or devalued collateral), platform risk (the risk of insolvency or failure of the platform), and regulatory risk (the risk of non-compliance with existing or future regulations).

Given the significant differences in the nature, risks, benefits, and potential systemic implications of both staking (excluding layer 1 staking) and crypto asset lending, it is essential to thoroughly examine these aspects before deciding whether they should be regulated in tandem in phase 2. Factors regulators should consider include:

We do not think that consumer-based permissionless staking for network security should be regulated in the same way as staking in DeFi platforms or applications. Consumer-based permissionless staking for network security is a simpler and more transparent activity that involves locking up cryptoassets in a blockchain network to secure its operations and earn rewards. This activity does not involve complex mechanisms that create additional risks for the participants. Moreover, consumer-based permissionless staking for network security does not pose significant systemic risks or financial stability concerns, as it is decentralised and distributed across many nodes that validate transactions and create new blocks. Therefore, we believe that consumer-based permissionless staking for network security should be treated differently from staking in DeFi platforms or applications for regulatory purposes.

        46.What do you think the most appropriate regulatory hooks for layer 1 staking activity would be (e.g. the staking pools or the validators themselves)?

        Please refer to the comprehensive answer to question 44 above.

[1] Future Financial Services Regulatory Regime for Crypto Assets Consultation and call for evidence, HM Treasury, 2023 (available here)

[2] The NEAR Whitepaper (available here).

[3] NEAR Foundation Announces Policy Principles (available here).

[4] Consensys, DeFi Market Commentary – January 2023 (available here).

[5] Largest stock exchanges worldwide as of June 2022, by value of electronic order book share trading published by Statista (available here).

[6] Dunja Radonic, Bankless Times, Eye-Opening DeFi Statistics & Facts for 2023 (available here).

[7] See, e.g., Written Evidence Submitted by Chainalysis. Chainalysis, UK Parliament Committees, September 2022, (available here).

[8] See note 1.

[9] Jake Chervisnky, DeFi lending doesn’t exist (yet), Why DeFi protocols are mislabeled as lending protocols (available here).

[10] See further Table 1, Crypto vs. traditional finance system, DeFi risks and the decentralisation illusion, BIS Quarterly Review, 06 December 2021 (available here).

[11] Future Financial Services Regulatory Regime for Crypto Assets Consultation and call for evidence, paragraph 11.7, pg. 67, HM Treasury, 2023 (available here).

[12] See paragraph 1.11 in the Consultation paper.

[13] CFTC v. FTX Trading Ltd. et al., 1:22-cv-10503-PKC, SDNY, paras 56-62 (available here). See also, e.g., Sandali Handagama,  CoinDesk,, FTX Violated Its Own Terms of Service and Misused User Funds, Layers Say, 10 November 2022 (available here),

[14] See KPMG, The collapse of FTX, Lessons and implications for stakeholders in the crypto industry, November 2022( available here).

[15] Ibid.

[16] Ibid.  

[17] J.P. Morgan, U.S. Mid- and Small-Cap Banks Crypto Banking Weekly, November 11, 2022 (available here).

[18] See, e.g., Lang Mei, Nasdaq, 5 January 2023, Learning the Hard Way: The FTX Debacle Once Again Demonstrates DeFi’s Strengths (available here) (“[b]lockchain analytics platform Nansen has reported a double-digit percentage increase in DeFi users in the aftermath of the FTX collapse”).

[19] Hester M. Peirce, Remarks before the Digital Assets at Duke Conference, 20 June 2023 (available here).

[20] Ibid.

[21] Kennedy and Crypto, Chair Gary Gensler, 8 September 2022 (“[g]iven the nature of crypto investments, I recognize that it may be appropriate to be flexible in applying existing disclosure requirements. Tailored disclosures exist elsewhere — for example, asset-backed securities disclosure differs from that for equities”) (available here).

[22] The EU Markets in Crypto-Assets (MiCA) text is available here. MiCa was approved in April 2023.

[23] The Responsible Financial Innovation Act (a.k.a the Lummis-Gillibrand bill) presented to the US Senate in 2022 here.

[24] The Current SEC Disclosure Framework Is Unfit for Crypto, Paradigm Policy, Rodrigo Seira, Justin Slaughter, Katie Biber, 20 April 2023 (available here).

[25] In the past year, a few CeFi entities (Alameda, Celsius, Voyager etc) failed due to lack of reserve funds and transparency (among other things). In the Bankruptcy report filed re FTX, the major pitfalls of the exchange were based on its lack of appropriate controls, concentrated power, and commingled funds which also led to poor accounting and lack of reserves.

[26]  Guidelines on risk factors under the Prospectus Regulation, European Securities and Markets Authority, 29 March 2019, (available here).

[27]PRR 2 – FCA Handbook, Financial Conduct Authority, 01 January 2021, (available here).

[28] SEC Commissioner Hester M. Peirce, Token Safe Harbor Proposal 2.0” (available here).

[29] See note 11.

[30] Safe Harbor X, LeXpunK-Army, 7 March 2023  (proposing a rule that would provide an exemption for the distribution of autonomous cryptoassets  to users and builders of autonomous software systems, based on the Token Safe Harbor Proposal 2.0, but with some modifications and additions, such as requiring semi-annual updates, an exit report, guidance on decentralisation criteria, and clarifying the definition and scope of autonomous cryptoassets  and autonomous cryptosystems). These safe harbour proposals would operate to effectively provide projects with conditioned routes to compliance, based on each project meeting various requirements (including disclosures, smart contract audits, and degree of decentralisation) (available here).

[31] 17 CFR § 230.144. Rule 144 under US securities laws allows for the sale of restricted securities under certain conditions one of which is a holding period. See SEC, Rule 144: Selling Restricted and Control Securities, 16 January 2013 (available here).

[32] LeXpunK Army, Reg-X-Proposal-An-Exempt-Offering-Framework-for-Token-Issuances, 25 April 2022 (available here).

[33]  Ibid.

[34] See note 11.

[35] See Mayer Brown’s comments on the Lummis-Gillibrand bill referring to ‘ancillary assets’ as: ‘An ancillary asset includes any “intangible, fungible asset that is offered, sold, or otherwise provided to a person in connection with the purchase and sale of a security through an arrangement or scheme that constitutes an investment contract” but, importantly, does not include assets that have debt or equity-like characteristics’” (available here).

[36] Model law consultations and proposals can serve as guidance or inspiration for other jurisdictions that are considering similar reforms or initiatives. COALA created a model law for DAO’s, organising industry players, academics, and regulators to collaborate on the language. The intention is to work with local governments to allow adoption of the Model Law. See, e.g., Model Law For Decentralised Autonomous Organizations, Constance Choi, Primavera De Filippi, Rick Dudley, Silke Not Elrifia, Coalition of Automated Legal Applications (COALA), 2021 (available here).

[37] Fahad Saleh, The Review of Financial Studies, Blockchain without Waste: Proof-of-Stake, Volume 34, Issue 3, March 2021, Pages 1156–1190 ( available here).

[38] Chris Brummer, Introducing Disclosure NFTs, Disclosure DAOs, and Disclosure DIDs, 24 March 2022, Medium (available here).

[39] Chris Brummer, Disclosure, Dapps and DeFi, Stanford Journal of Blockchain Law & Policy, 29 June 2022 (available here).

[40] See LexPunK Github materials here.

[41] The Edinburgh Decentralisation Index is a proposed framework for measuring and comparing the degree of decentralisation in different blockchain systems. The framework consists of four layers: network, protocol, governance, and application. Each layer has a set of features that capture different aspects of decentralisation, such as node distribution, consensus mechanism, upgrade process, and smart contract functionality, and is assigned a score from 0 to 5 which is then aggregated (available here). Also, Consensys has analysed metrics of decentralisation on the Ethereum mainnet, including  network size, node diversity, node geography, client diversity, miner diversity, gas usage, gas fees, and transaction volume. Another analysis computes  the distribution of mining power in Bitcoin and Ethereum using three metrics (Gini coefficient, Shannon entropy, and Nakamoto coefficient) and three granularities (days, weeks, and months), while the so-called decentralised quotient measures decentralisation by calculating  the number of nodes by the number of validators or miners in a blockchain network (available here).

[42] See, e.g.,Coinbase, What Is ‘Proof of Work’ or ‘Proof of Stake’? (available here).

[43] See e.g., NEAR Protocol, Network NEAR Protocol, September 2022 (available here).

[44] See note 23.

[45] See note 23.

[46] The NEAR Protocol has recently launched the Blockchain Operating System (“BOS”), which serves as a single platform that developers can build into and users can interact on, including by browsing and discovering Web3 products such as crypto exchanges, non-fungible token (NFT) galleries and social networks. The BOS will be compatible with all blockchains (currently supporting NEAR Protocol and Ethereum Virtual Machine chains), with NEAR protocol acting as the common entry point. The BOS offers a decentralised and composable and front end framework for building, launching, and using dApps, while leveraging common user experience frameworks such as profiles, notifications, and searching. With BOS, the NEAR protocol is transitioning from being only a layer 1 blockchain to a cross-chain solution aiming at lowering the barriers of entry into Web3.  For more information on the BOS, see, e.g., Near Protocol Announces the Blockchain Operating System, NEAR Foundation, 2 March 2023 (available here);

[47] Financial Services Market Act 2000 (FSMA), s.235 (available here).

[48] See ‘MEV’ section below.

[49] For an excellent, detailed discussion of MEV, see Evan Zinaman, Where the Rubber Meets the Road: A MEV-aware, Functionalist Review of OFAC Risk ‘On the Base Layer,’  29 April 2023 (available here).

[50] See further Flashbots Docs with more information on its work (available here).

[51] Aru Juels et al.,  Chainlink, Fair Sequencing Services: Enabling a Provably Fair DeFi Ecosystem, 22 September 2020 (available here).

NEAR Foundation and PipeFlare, a trailblazing play-to-earn (P2E) platform, are partnering to reshape Web3 gaming by building on Aurora, NEAR’s Ethereum-compatible layer. As Web3 gaming on NEAR accelerates, PipeFlare will enable gamers to play, earn crypto, and engage socially in a decentralized environment. Collaborating with NEAR Foundation, PipeFlare aims to redefine scalability, security, and sheer enjoyment in Web3 by leveraging the EVM-compatible development capabilities of Aurora.

PipeFlare is one of the industry’s most reliable Web3-enabled gaming platforms, allowing users to earn cryptocurrency through gameplay, tasks, and activities. The partnership will help create more intricate, engaging Web3 games in a secure fashion. The collaboration will most certainly attract more users to Web3 gaming, while making NEAR a top choice for game developers.

Let’s delve into the PipeFlare and NEAR Foundation partnership, the advantages of the NEAR Blockchain Operating System and tech stack for Web3 gaming, and how the collaboration positively impacts the future of the NEAR decentralized gaming ecosystem.

Transforming play: PipeFlare’s NEAR-driven gaming evolution

Pipeflare is one of the most reputable P2E gaming sites in the industry, backed by some of the largest investors in the blockchain space like DCG and Horizen Labs. All PipeFlare transactions are published publicly as well, giving gamers more transparency and peace of mind in Web3 gaming, earning, transacting, and collecting.

Gamers can enjoy playing games, collecting free cryptocurrency from PipeFlare faucets, participating in airdrops, competing in weekly leaderboards, and earning rewards through the referral program. Additionally, players can buy and sell limited-mint NFTs on PipeFlare’s NFT marketplace. 

PipeFlare’s exclusive Pyro NFT also brings perks like staking bonuses and a secret fourth crypto faucet to users. A dedicated support team demystifies blockchain and NFTs, while NEAR’s scalability enhances transactions without sacrificing speed or efficiency. This paves the way for PipeFlare’s explosive growth in the dynamic Web3 gaming market.

As security becomes more paramount in safeguarding digital assets and identities in Web3 gaming, PipeFlare is now embracing the speed and security of NEAR infrastructure. This ensures the protection of user data and assets and provides a cutting-edge, trustworthy, and reliable Web3 gaming experience for users to explore and enjoy.

Making Web3 Gaming more scalable, secure, and dev-friendly

NEAR’s intuitive, developer-focused platform offers substantial advantages for PipeFlare, simplifying game development and empowering creators to craft groundbreaking Web3 gaming experiences for veteran gamers and newcomers alike. But the PipeFlare and NEAR Foundation collaboration will transcend mere technology integration. Harnessing the BOS, PipeFlare can introduce even deeper functionality to players in areas like NFTs, in-game token rewards, and community engagement. As one of the only platforms where NFTs can be ported into multiple games, PipeFlare is breaking new ground in the industry.

NEAR Foundation is excited about this new portable NFT model in Web3 gaming, and will focus on the following three areas to help accelerate PipeFlare:

To get the ball rolling, the partnership will initially focus on upgrading Pipeflare’s existing games and developing new ones using the BOS. This transition will enhance the gaming experience for users and showcase the capabilities of NEAR’s technology in the Web3 gaming space.

The collaboration also marks substantial progress for the Web3 gaming industry, demonstrating that key players recognize NEAR’s potential. It also signals NEAR’s strong positioning to emerge as the premier blockchain for novel gaming experiences.

Shemaroo Entertainment, a prominent Indian content powerhouse with a diverse library of over 3,700 movie titles, a subscriber userbase of over 200 million people, and a vast global distribution network, is forging a strategic partnership with the NEAR Foundation to foster Web3 innovation in the media and entertainment industry — across  India and beyond. The partnership also paints an even brighter picture for NEAR and the entertainment sector.

With six decades of experience in Indian cinema, Shemaroo is synonymous with the Indian entertainment picture, consistently staying at the forefront of technological advancements, and adapting to the ever-changing landscape of content consumption. Sheramoo’s latest foray into Web3 and the metaverse with NEAR Foundation is the latest example.

Through this collaboration, Shemaroo aims to explore the potential applications of blockchain technology by establishing a dedicated Web3 innovation cell. The cell will focus on unlocking new opportunities for decentralization, transparency, and immutability in the media and entertainment sector. 

With over 600 employees in Delhi, Mumbai, and New Jersey, Sheramoo’s already global reach in the entertainment industry is rapidly growing. Sheramoo’s app is also available and used in over 150 countries and counting. This extensive and expanding global presence positions Shemaroo perfectly to explore and capitalize on the potential of Web3 in entertainment — powered by the NEAR Blockchain Operating System.

Shemaroo expands Web3 into Indian media

Together, Shemaroo and NEAR Foundation will develop pioneering products and services that leverage Web3 and Sheramoo’s vast content library. The Web 3 innovation cell will become a breeding ground for groundbreaking ideas in how blockchain technology can reshape multiple facets of the entertainment industry.

Shemaroo will take advantage of the BOS to develop scalable blockchain and smart contract services in areas like content distribution, rights management, and audience engagement. Hiren Gada, CEO of Shemaroo Entertainment, expressed enthusiasm for the partnership and the potential it holds for the future of media.

“As a forward-thinking company, we are always looking for new ways to innovate and enhance our offerings to better serve our users,” says Gada “We believe that blockchain technology has the potential to unlock new possibilities and create new revenue streams for the industry.” 

Gada also highlighted the benefits of NEAR becoming the Blockchain Operating System (BOS), which will ease and accelerate Sheramoo’s adoption of Web3, and reduce the time to market for projects. With NEAR, Shemaroo will provide Indian entertainment enthusiasts with enhanced security, faster transaction speeds, and lower costs for all forms of content engagement. 

Building Shemaroo’s next-gen content on NEAR

The partnership is expected to produce numerous benefits for both ecosystems. Shemaroo stands to increase brand awareness, reach new audiences, and develop fresh revenue streams while integrating cutting-edge technologies into its content. By building on NEAR, Shemaroo will be able to integrate things like NFTs and immersive metaverse experiences into both its vast existing library and future content.

Marieke Flament, CEO of the NEAR Foundation, shared her excitement about the partnership, saying, “We are thrilled to partner with Shemaroo Entertainment, a company with a rich history in Indian cinema and a vast market reach.” 

Flament added, “With a collection of over 3,700 movie titles and content distribution partners like Amazon Prime Video, Netflix, and YouTube, Shemaroo will expose NEAR to a completely new audience.”

Shemaroo garners over 100 million views per day, with a massive cumulative subscriber base of over 200 million. This impressive audience reach will make NEAR more visible in an important market, contributing to its broader vision of bringing one billion people to Web3 through strategic partnerships.

The partnership also helps increase the adoption of BOS, demonstrates the potential of blockchain technology in media and entertainment, and will attract new developers and partners in both the region and the entertainment industry. The partnership comes just shortly after the Foundation appointed Arpit Sharma to spearhead regional growth in India, ASEAN, and the Middle East.

The partnership between Shemaroo Entertainment and NEAR Foundation is an important step towards unlocking the full potential of blockchain technology in the world of media and entertainment. Using the Indian region as a breeding ground for innovation via Sheramoo’s Web3 cell, they’ll be setting a new standard for new forms of content for existing libraries.

As April draws to a close, we wanted to share the top global headlines from the NEAR Foundation and ecosystem this month.

Let’s take a look at some of the biggest stories from NEAR in February. 

NEAR Foundation launches NEAR Horizon

The NEAR Foundation attracted over 81 pieces of global coverage this month. One of April’s top stories was the NEAR Foundation’s launch of NEAR Horizon at Consensus 2023, a revolutionary accelerator supporting founders with open-access resources and incubator programmes from partners Dragonfly, Pantera and more.

As covered by Coindesk, Horizon will enable the NEAR ecosystem to continue to build projects through the crypto winter, utilizing the dedicated marketplace to access over 15 service providers, 40 mentors and 300 backers.

Illia Polosukhin talks building in a bear market

Illia Polosukhin took to the stage at Consensus 2023, contributing to a Coindesk panel focused on BUIDLing in a bear market, stressing the crucial role of collaboration as Web3 strives to onboard Web2 users. Developers have created advanced and exciting infrastructure solutions, but now need to add a focus on delivering projects to the market, realising the potential of blockchain technology.

Consensus 2023 also hosted the full launch of the BOS (Blockchain Operating System), providing users and developers with a one-stop-shop for interacting with any blockchain. As reported by Bloomberg, the open source platform enables builders to utilise thousands of community components to expedite the blockchain development process, at no cost to the developer or end user.

NEAR Foundation announces the return of Women in Web3 Changemakers

Following a successful launch last year, the NEAR Foundation announced the return of the Women in Web3 Changemakers list. The initiative, as covered by CryptoTVPlus, champions the achievements of female leaders from across the Web3 industry and aims to inspire higher rates of diversity in a field where women are severely underrepresented. Nominations are now open – submit your female colleagues here.

Marieke Flament talks Web3 talent and leadership with BTC Echo

Marieke Flament sat down for an exclusive interview with BTC Echo, Germany’s major crypto publication to talk about talent, leadership and more . In the profile piece, she explained how ​​the NEAR Foundation is moving away from supporting the blockchain rat race and helping NEAR protocol pivot to become  a blockchain operation system.

“We are at a major turning point,” she told the editor, and explained why working for NEAR Foundation is so special. “The community is inclusive. People come from all over the world. You can ask them any question and they will explain it in simple terms. It’s a safe space.”

Cosmose AI’s switch to NEAR featured in TechCrunch

Cosmose AI joined the NEAR ecosystem this month, leveraging Web3 innovations to ensure that users maintain complete control over data and privacy. Featured in TechCrunch, Cosmose AI’s recent funding round led by the NEAR Foundation will also enable the continued development of KaiChing, an in-house cryptocurrency leveraging NEAR to reduce payment processing times and significantly lower fees.

NEAR Foundation at Women in Payments Symposium in London

The Women in Payments Symposium took place in London during April, where Marieke Flament presented the closing keynote discussing the opportunity presented to Web3 by the recent banking woes in the USA and Europe. As covered by  CityAM and TechFundingNews, Marieke spoke to attendees about the potential of DeFi and the need for a clear regulatory landscape, whilst highlighting the potential for partnerships between traditional finance and decentralised finance.

Google Cloud and NEAR Foundation partnership featured in Cointelegraph

Google Cloud announced a special initiative for Web3 startups, bringing blockchain-based projects into the fold and providing relevant technical tools and cloud services to series A companies. Cointelegraph covered the increased support for founders building in Web3, as Google partnered with the NEAR Foundation and other blockchains to provide scalable infrastructure to founders across the globe.

Hackernoon calls BOS the “universal remote for crypto”

Bringing April to a close, Hackernoon took a shine to NEAR’s Blockchain Operating System, comparing the BOS to a universal remote for crypto, enabling users to use the same wallet over different blockchains and decentralised applications. The Web3-focused publication is excited by the BOS’s replacement of centralised infrastructure  and groundbreaking support for forkable developer components, likening the BOS to the early days of IOS and Android.

That’s all for this month. If we missed anything out or want to share anything for next month’s roundup, get in touch!

It’s no surprise that the Web3 industry presents many unique challenges for lawmakers and regulators globally. Decentralised, permissionless technology is, in many ways, at odds with much of current law and regulation that assumes centralised, intermediated and gatekept systems. Adding to this inherent complexity, Web3 technology is borderless by nature, spanning countless jurisdictions and legal/regulatory frameworks.

We believe that fair, proportionate and clear regulation can benefit our industry and is necessary if we want to see genuine global growth and adoption of Web3 technology. We also believe that the policy outcomes advanced by most regulators globally (protecting investors, maintaining market integrity and promoting financial stability) are reasonable and capable of being achieved in the Web3 context with the right approach (i.e. regulatory equivalence is possible).

Indeed, many of Web3’s core features (including decentralisation, disintermediation, transparency and immutability) make it uniquely suited to effectively achieving these policy outcomes. But, to achieve these outcomes, regulation must be fair and proportionate. If regulation isn’t fair and proportionate — if it doesn’t consider the unique features and associated challenges inherent to Web3 technology — then it can stifle innovation and undermine the very policy goals lawmakers and regulators are trying to advance1. 

CURRENT STATE OF PLAY

Currently, there is no common or consistent approach to Web3 regulation. Laws and regulations that do exist vary widely between jurisdictions. In some jurisdictions, including Switzerland, the European Union (EU), the United Kingdom (UK), Japan, Singapore and Hong Kong, we are seeing progress and, critically, a recognition that, at least in some respects, our industry does require a different approach. In the EU, for example, the Markets in Crypto-Assets Regulation (MiCA) (the text of which was agreed upon late last year and is anticipated to come into force in late 2024) aims to create a harmonised, comprehensive legal framework across all EU member states for the regulation of crypto assets and related activities2 (although other policy developments are troubling3). Switzerland was one of the first jurisdictions to implement an effective regulatory framework for digital assets back in 20184 and has since been home to a vibrant Web3 ecosystem. The UK has also signaled its intent to embrace our industry, recently launching a significant consultation to seek views on how the UK could best regulate the Web3 industry5, which followed an excellent Law Commission of England and Wales (Law Commission) paper on personal property law and digital assets (as well as a consultation on decentralised autonomous organisations (DAOs) which recently closed6).

However, in other jurisdictions, most notably the US, there has been an increasing, and in many cases, overt hostility towards our industry. Amongst other things, a recent White House report on crypto is scathing7, a Treasury Department analysis of decentralised finance (DeFi) (somewhat more balanced than the White House report) contains some fundamental technical and policy misunderstandings8, banking access for Web3 projects has been compromised in a seemingly coordinated and deliberate manner9, prominent lawmakers talk of creating an ‘anti-crypto army,’10 and aggressive legislation proposals are receiving increased support. Regulators continue to rely on outdated laws and regulations that aren’t fit for purpose without providing any clarity or guidance that the industry desperately needs, let alone a viable route to registration11. Amidst this complex and unclear regulatory background, regulators and the industry alike struggle with definitive asset classification and the industry faces a wave of enforcement actions12. 

This approach is unquestionably damaging the Web3 industry in the US (and beyond), driving many projects out of the jurisdiction. It is not a fair or proportionate regulatory approach, it is regulation by enforcement.

WHERE DOES THIS LEAVE THE INDUSTRY?

There is much work to do, particularly in the US. As an industry, we need to recognise that these regulatory challenges and the apparent growing hostility can potentially harm us all. However, what is unfolding now across our industry in the US could become a seminal and net positive moment if we can unite and mobilise effectively.

The NEAR Foundation’s primary focus is to support the ongoing growth and development of the NEAR protocol and its associated ecosystem, but it also has a more general mandate to accelerate the adoption of open technologies at a global scale. The Foundation, therefore, has a responsibility to advocate for reasonable, proportionate and effective approaches to regulating our industry. 

Part I of this series sets out the NEAR Foundation’s core policy priorities for the next 12 months and beyond to increase awareness of the key issues, and to show what guides the NEAR Foundation as we advocate on behalf of the NEAR ecosystem and the wider industry. These policy priorities are: (1) protect developers and open source software; (2) protect privacy; (3) promote autonomy; (4) protect validators; (5) promote clarity, collaboration and good faith engagement.

In Part II of this series, to follow shortly, we set out policy initiatives to help drive these priorities forwards.

NEAR FOUNDATION POLICY PRIORITIES

  1. PROTECT DEVELOPERS AND OPEN SOURCE SOFTWARE

Developers are the lifeblood of our industry, responsible for creating, maintaining, and innovating the infrastructure on which Web3 operates. To foster innovation and growth, it is essential to safeguard developers from onerous regulation and ensure that publishing open source code remains free and open. Developers should be able to explore, experiment, and create without unnecessary constraints, burdensome obligations or fear of liability (including, for example, designation as fiduciaries13 or ‘Financial Institutions’14). 

Open source code is a powerful tool that enables transparency, collaboration, and rapid innovation,  allowing developers to share, modify, and build upon existing work while enhancing the security of the code. By defending the right to publish open source code, we also support the principles of freedom of expression and the free flow of information. This not only benefits the Web3 community but also fosters a culture of open collaboration across the entire technology industry and encourages its continued development.

  1. PROTECT PRIVACY

Privacy is a fundamental human right and a cornerstone of the Web3 vision to create a more secure, user-centric and user-empowered web. However, as a neutral and highly transparent technology, blockchain (and other Web3 technology) is equally capable of being misused for warrantless mass surveillance and censorship if appropriate privacy safeguards aren’t in place. We are already seeing various attempts to erode privacy in Web3 that could have far-reaching consequences well beyond our industry15.

Web3 technology has demonstrated that maintaining privacy can be compatible with other important policy outcomes including, for example, the prevention of crime. Zero-knowledge proof (and other) innovations are already capable of implementing (for example) KYC/AML and sanctions checks without exposing sensitive personal data16.

Privacy should be staunchly defended to protect individuals from unwarranted surveillance, invasive data collection, censorship and malicious actors. Policymakers should support these outcomes when it comes to Web3 technology, as they have done in Web2 with data protection legislation such as GDPR and DPA. By championing privacy, we want to ensure that Web3 technology continues to respect users and empower them to own and control their data. 

  1. PROMOTE AUTONOMY

Ensuring individuals can use self-hosted products and services free of heavy restrictions or obligations is critical to user empowerment. Through self-hosting, users can fully control their assets and data, enhance their privacy, and reduce censorship risks and reliance on centralised intermediaries and service providers (and it is often within such centralised intermediaries that risk is most highly concentrated17). Self-hosting is also a foundational component of secure, resilient, diverse and competitive ecosystems since it minimises centralised points of failure and dangerous concentrations of power18 and supports decentralised infrastructure and governance systems19. But, we are already seeing proposals that would harm autonomy by significantly constraining the development and use of self-hosted products and services20.

Users should be able to seamlessly embrace self-hosting as a viable and attractive alternative to centralised service offerings and also safely participate in decentralised autonomous governance systems (including DAOs) without fear of liability or being subjected to burdensome obligations. Many in the industry, including those working on NEAR protocol’s transition to the Blockchain Operating System21, are pioneering technological innovations to make this possible. Policymakers should also enable these outcomes. 

  1. PROTECT VALIDATORS

Validators are the backbone of decentralised networks, ensuring those networks can function effectively by validating transactions, maintaining transaction accuracy and ensuring adherence to consensus rules. In performing this essential function, validators should not be subject to burdensome obligations or significant liability risks22. Accordingly, a balance should be struck between the need for regulatory clarity, network security and ease of validator participation.

A good starting point could be the creation of a light-touch, standardised public disclosure regime whereby validators would be required to disclose relevant information about their operations. This relevant information could include (amongst other things) relevant digital asset holdings, ownership of/the extent of their node operations, fee structure, affiliations with other significant ecosystem participants, hardware and software infrastructure, security measures, and past performance records. De minimis thresholds could be implemented so that the disclosure requirements would apply only to those validators operating at scale and in connection with significant networks. This approach could also provide much-needed clarity by confirming the nature and extent of participating validator obligations and liability in the context of network failures, security breaches or other adverse events, providing an incentive for participation in the regime.

This type of disclosure-based approach would reduce information asymmetry, and therefore promote investor protection and help to maintain market integrity. It also has other advantages, including: (1) focusing on the types of activities that are being undertaken rather than the nature or classification of the underlying asset (the latter approach can create enormous complexity, as evidenced by the current situation in the US); and (b) being relatively flexible and so capable of application to other critical network participants including, for example, core development teams who are building/maintaining certain types of Web3 projects/infrastructure23.

By establishing clear guidelines and legal safeguards for validators (and other network participants), policymakers can provide a conducive environment for validators to operate without fear of significant legal consequences. This will promote the resilience, security and growth of decentralized networks and help to preserve critical benefits of Web3 – decentralisation and disintermediation.

  1. PROMOTE CLARITY, COLLABORATION AND GOOD FAITH ENGAGEMENT

The industry desperately needs clarity from lawmakers and regulators. Effective policy debate requires willingness from both policymakers, and the industry to discuss issues in good faith24, as well as a recognition that Web3 presents a unique and unprecedented policy challenge and therefore an openness to exploring new approaches.

We should also recognise that as developers, users, and other proponents of Web3 technology, we are each representatives of and advocates for our industry. Our conduct matters, and we should all strive to act with integrity and set a good example to show policymakers what our industry is capable of, and the unique value it can generate25. To do this effectively, collaboration across the industry is essential. 

CLOSING THOUGHTS

Productive dialogue between the industry and regulators will hopefully lead towards further legal and regulatory clarity in Web3, which will have a positive effect on: (1) developers, by offering them a framework in which to operate, aware of their obligations and protected from the unreasonable application of unsuitable laws and regulations; and (2) users, by providing a safe environment in which to try new products and services and explore a new technological frontier where autonomy, transparency and privacy are paramount.  

We believe that the light-touch disclosure based approaches (like the high-level proposal referenced above), as well as safe harbour implementations26 (which provide projects with viable, conditioned routes to registration/compliance – and which could be integrated into a wider disclosure based regime), sandboxes (to explore specific activities like digital asset issuance, updated AML/KYC processes etc.) and model law proposals27 (amongst other approaches), show significant promise and warrant further work and discussion28. 

We will explore some of these potential routes forwards in more detail in Part II of this series. 

In the meantime, we believe that regulatory clarity and consensus are essential for the meaningful global adoption of Web3 technology. Policymakers’ approach to Web3 will continue to evolve, and on-going education efforts and good faith discussions will be key to moving the conversation in a positive direction. We welcome the opportunity to engage with other industry participants, as well as lawmakers and regulators globally, to develop a fair and proportionate approach in support of these policy priorities. 

Disclaimer: Nothing in this article/post should be construed as legal, tax or investment advice. This post might not reflect all current updates to applicable laws, regulations or guidance. The authors disclaim any obligation to update this post and reserve the right to make any changes to this post without notice. In all cases, persons should conduct their own investigation and analysis of the information in this post. Where this post contains links to other sites and resources provided by third parties, these links are provided for information only and should not be interpreted as approval by us of those linked websites (or any information obtained from them) that the authors of this post do not control.

Footnotes:

1. See, e.g., Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization, Hester M. Peirce, speech on February 6, 2020 (available here), where Peirce discusses the current challenges in the US with the lack of legal clarity around decentralization and the outdated application of the Howey Test to crypto assets. See also, e.g., The SEC, Digital Assets and Game Theory, Yuliya Guseva, 46 J. Corp.. L. 629-679 (2021)(available here), which suggests that the SEC’s regulation via enforcement actions approach has broken the ‘fabric of cooperation’ between industry participants and the SEC and is therefore leading to bad outcomes for all market participants. See further testimony before the US House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion, hearing entitled Coincidence or Coordinated? The Administrator’s Attack on the Digital Asset Ecosystem, Dr. Tonya M. Evans, March 9, 2023 (available here), where Evans emphasizes the difficulty in innovating and building in Web3 given the present uncertain regulatory climate in the US.

2. MiCA will primarily regulate centralised intermediaries/crypto-asset service providers in a relatively proportionate manner, enabling so-called ‘passporting’ across all member states and largely carving out decentralised initiatives, demonstrating a clear recognition by EU lawmakers and regulators of the current and future importance of our industry. MiCA isn’t perfect – the provisions governing stablecoins are unwieldy and challenging, the bloc’s intended approach to decentralised initiatives remains largely unknown and some other legislative developments are troubling (see footnote 3) – however, it represents a meaningful launching-off point for engagement and future iteration, and will provide much-needed clarity and consistency across the world’s largest single market.

3. See, e.g., Proposal for a Regulation on Information Accompanying transfers of funds and Certain Crypto-Assets, Piotr Bąkowski, European Parliamentary Research Service, 20 July 2021 (available here), which proposes to expand travel rule obligations to all crypto-asset service providers (CASPS) and require them to collect identifying data in respect of all transactions with no minimum transaction threshold (while the TradFi equivalent rule has a €1k minimum transaction threshold). See also, e.g., Proposal for a Regulation of the European Parliament and of the Council on harmonised rules on fair access to and use of data (Data Act), European Commission, 23 February 2022 (available here), which proposes mandating that certain smart contracts be ‘reversible’ and/or contain a so-called ‘kill switch’ in the ‘Internet of Things’ (IOT) context. See also, e.g., “Decentralised” or “disintermediated” finance: what regulatory response?, April 2023, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) (available here), which proposes, in effect, to ‘re-intermediate’ DeFi (amongst other things) by requiring DeFi projects to incorporate in the EU, and to classify DeFi front-ends as regulated intermediaries with data collection and monitoring obligations.

4.  The Swiss Financial Market Supervisory Authority (FINMA) published ‘ICO Guidelines’ in February 2018 (available here), which set out a relatively straightforward digital asset classification framework with the aim of providing clarity to market participants. 

5.  The consultation indicates an approach inspired partly by MiCA — i.e. regulate centralised intermediaries based on their activities, but recognise that decentralised initiatives will require a different approach — and asks the industry to provide views and feedback to inform the UK Government’s approach. This degree of engagement with industry is extremely encouraging. The NEAR Foundation will be submitting a consultation response and we would encourage all industry stakeholders to do the same. The consultation paper is available here.  

6.  The Law Commission’s consultation paper dealing with law reform proposals in the context of digital assets and personal property rights is available here, and the Law Commission’s consultation paper on DAOs can be found here.

7.  The Annual Report of the Council of Economic Advisors, 20 March 2023 (available here), p. 238. (“[C]rypto assets to date do not appear to offer investments with any fundamental value, nor do they act as an effective alternative to fiat money, improve financial inclusion, or make payments more efficient; instead, their innovation has been mostly about creating artificial scarcity in order to support crypto assets’ prices—and many of them have no fundamental value.”) 

8.  See, e.g., Coin Centre’s excellent commentary on the Treasury DeFi risk assessment. Peter Van Valkenburgh, Treasury’s new DeFi risk assessment relies on ill-fitting frameworks and makes potentially unconstitutional recommendations, 7 April 2023 (available here).

9.  See, e.g., Operation Choke Point 2.0: The Federal Bank Regulators Come for Crypto, Cooper & Kirk LLP (available here).

10.  See, e.g., Elizabeth Warren is building an anti-crypto army. Some conservatives are on board, Zachary Warmbrodt, Politico, 14 February 2023 (available here).

11.  See, e.g., Due to SEC Inaction, Registration is Not a Viable Path for Crypto Projects, Rodrigo Seira, Justin Slaughter, Katie Biber, Paradigm (available here), which notes that despite SEC Chair Genlser repeatedly telling projects to ‘come in and register’, current US securities laws are incompatible with various features of Web3, making registration a practical impossibility for Web3 projects.

12.  Only this week, the SEC commenced an enforcement action against Bittrex, alleging, among other things that the Bittrex Platform “merged three functions that are typically separated in traditional securities markets—those of broker-dealers, exchanges, and clearing agencies—despite the fact that Bittrex has never registered with the SEC as a broker-dealer, national securities exchange, or clearing agency,” and arguing that five tokens, including Algorand and DASH, are securities. Securities and Exchange Commission v Bittrex Inc., (WD Wash) (Complaint), No 2:23 cv 00580. See also e.g., SEC Cryptocurrency Enforcement Update, Cornerstone Research 2022 (available here), according to which, in 2022 alone the SEC brought 30 crypto-related enforcement actions against Web3 projects. In spite of the numerous enforcement actions, the SEC has still not provided any material guidance to the industry to foster regulatory compliance. For a longer list of SEC crypto asset enforcement actions, please refer to the SEC’s summary available here. 

13.  See, e.g. Tulip Trading Ltd v Van der Laan and Ors [2023] EWCA Civ 83, a case currently in the High Court of England & Wales (following the successful appeal of a High Court order for summary judgment which was overturned by the Court of Appeal) that considers whether certain core developers of various Bitcoin networks owe network users either a fiduciary duty and/or a tortious duty of care, and therefore is one of the most important cases to date in the context of developer duties/liability. 

14.  See e.g., 31 U.S.C. § 5312(a)(2) (defining a financial institution as an entity encompassing various organizations and businesses, including but not limited to banks, credit unions, investment companies, broker-dealers, insurance companies, currency exchanges, and money transmitters, or deemed to engage in similar activities). Being classified as a ‘Financial Institution’ from a US law perspective subjects a person to (amongst other things) various onerous information collection and reporting duties, including a duty to: (1) identify and record personal information of any person who uses the relevant software/service; (2) develop anti-money laundering (AML) programmes that can block persons from using the relevant software/service where there are suspicions of illegal activity; and (3) file reports about users of the relevant software/service to the government.

15.  See, e.g., the Digital Asset Anti-Money Laundering Act proposed in December last year in the US by Senators Warren and Marshall (the “Warren/Marshall Act”),  which would significantly erode the privacy of anyone using or supporting public blockchain infrastructure; See also, e.g., Coin Centre’s post here for further analysis. See further, e.g., the US Infrastructure Bill which contains two particularly problematic revisions to the US Tax Code: (1) widening the definition of ‘broker’ so that it captures non-custodial service providers and transfers involving self-hosted wallets; and (2) an adjustment to include digital assets within provision §6050I, with the result that businesses would need to collect information about counterparties whenever they receive digital assets worth more than $10,000 in value. See also footnote 3 re ACPR’s proposals to treat DeFi front-ends as intermediaries which would require information collection and reporting with respect to users.

16.   Zero-Knowledge (ZK) proofs are a cryptographic technique that enable one party to prove to another party that they have knowledge of a certain piece of information, without revealing the underlying information itself. ZK proofs can enhance privacy and efficiency in KYC and AML compliance, as they can enable individuals to prove that they have already completed KYC with a trusted provider without disclosing their personal data to other parties. ZK proofs can also allow individuals to prove that they are not on any sanctions or watch lists without revealing their identity or location. ZK proofs can reduce the risk of identity theft, data breaches, and fraud, as well as lower the operational costs and complexity of KYC and AML processes. See, e.g., zkKYC – A solution concept for KYC without knowing your customer, leveraging self-sovereign identity and zero-knowledge proofs, Pieter Pauels, Smart Contract Research Forum, July 2021 (available here). 

17.  For example, both FTX and Alameda were (extremely) centralised digital asset intermediaries, performing functions and offering services to customers in a bundled manner, and it is critical to recognise that: (1) the market contagion following the collapse of FTX/Alameda was significantly amplified precisely because of the centralised, opaque nature of the institutions (as well as alleged criminal behaviour); and (2) the contagion across decentralised ecosystems, which are open,  transparent, and disintermediated by design, was notably less severe precisely because of these unique Web3 features. In relation to (2) see, e.g., Report of the Cotnell SC Johnson College of Business, 2022 Cornell Roundtable Forum on Digital Assets, (available here).

18.  From a policy perspective, a key element of promoting autonomy involves the prevention of concentrations of power amongst a small number of centralised service providers/market actors that bundle various services together, something that has been a feature of the industry to date. See, e.g., Policy Paper Series (Part 1): Reframing How We Look at a Crypto Legislative Solution, Delphi Digital & LeXPunK, 17 March 2023 (available here)), which proposes a regulatory framework for public permissionless blockchain networks focussing on the regulation of systemically important vertically-integrated centralised actors.

19.  The NEAR Digital Collective (NDC) is a community grassroots initiative in the NEAR ecosystem that is working to support the ongoing development of sustainable governance infrastructure and the ecosystem’s continuing decentralisation. The NEAR Foundation supported the NDC’s recent launch of a decentralised treasury that represents an important step in the NEAR ecosystem’s ongoing decentralisation. See, e.g., NEAR Digital Collective Legal Framework, 21 March 2023 (available here).  

20. The Warren/Marshall Act would classify all providers of self-hosted wallets (and effectively anyone else who maintains public blockchain infrastructure) as ‘Financial Institutions’, subjecting them to a host of onerous obligations that are in practice impossible to comply with, and would significantly constrain the development and use of self-hosted products and services. See footnote 14 for more detail on the onerous obligations of ‘Financial Institutions’ from a US perspective. See also footnote 3 re ACPR’s proposals to treat DeFi font-ends as intermediaries which would require information collection and reporting with respect to users.

21. The Blockchain Operating System (BOS) serves as a single platform that developers can build into and users can interact on, including by browsing and discovering Web3 products such as crypto exchanges, non-fungible token (NFT) galleries and social networks. The BOS will be compatible with all blockchains (currently supporting NEAR protocol and Ethereum Virtual Machine chains), with NEAR protocol acting as the common entry point. The BOS offers a decentralized and composable and front end framework for building, launching, and using dApps, while leveraging common user experience frameworks such as profiles, notifications, and searching.For more information on the BOS, see, e.g., Near Protocol Announces the Blockchain Operating System, NEAR Foundation, 2 March 2023 (available here); Near Protocol Starts ‘Blockchain Operating System’ to Focus on User Experience, Lyllah Ledesma, Coindesk, 2 March 2023 (available here).

22. For example, Rule 3b-16(a)(2), Securities Exchange Act of 1934, 15 U.S.C. §§ 78a-78qq (2012). defines an exchange as an organization that (1) brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of the trade. The SEC’s proposed amendment to Rule 3b-16(a)(2) replaces the phrase “uses established, non-discretionary methods,” with “makes available established, non-discretionary methods,” which could inadvertently capture “developers working with all manners or protocols, front end systems, and smart contracts,” along with persons who “operate…’validators’ on the underlying blockchain where the AMM is stored”. See Reg-X-Proposal-An-Expempt-Offering-Framework-for-Token-Issuances, LeXpunK-Army, 7 March 2023 (available here). 

23.  The “Token Safe Harbor Proposal 2.0” framework proposed by SEC Commissioner Hester Peirce includes measures applying to validators, including “information, detailing…the process for validating transactions.” See Token Safe Harbor Proposal 2.0, Commissioner, Hester M. Peirce, 13 April 2021 (available here); See also, e.g., Safe Harbor X, LeXpunK-Army, 7 March 2023 (available here) (proposing a rule that would provide an exemption for the distribution of autonomous cryptotokens to users and builders of autonomous software systems, based on the Token Safe Harbor Proposal 2.0, but with some modifications and additions, such as requiring semi-annual updates, an exit report, guidance on decentralization criteria, and clarifying the definition and scope of autonomous cryptotokens and autonomous cryptosystems). These safe harbor proposals would operate to effectively provide projects with conditioned routes to compliance, based on each project meeting various requirements (including disclosures, smart contract audits, and degree of decentralisation).

24.  In any principles-based regulatory system, regulators are generally afforded wide discretion to interpret and enforce regulations in line with desired policy outcomes. Where that discretion is misused or otherwise not exercised in good faith, those systems break down with the result that innovation is stifled and policy goals are undermined.

25.  See, e.g., Community Policy Initiative No. 1, Polygon Labs, 11 April 2023 (available here). 

26.  See footnote 23 for more information on potential safe harbor implementations in the US.

27.  Model law proposals are draft laws or regulations that are proposed by regulators or other authorities to address specific issues or challenges in a given domain. Model law consultations and proposals can serve as guidance or inspiration for other jurisdictions that are considering similar reforms or initiatives. See, e.g., Model Law For Decentralized Autonomous Organizations, Constance Choi, Primavera De Filippi, Rick Dudley, Silke Not Elrifia, Coalition of Automated Legal Applications, 2021 (available here); Proposal for a Regulation on Markets in Crypto-assets, European Commission, September 2020 (available here) (proposing a regulation that would establish a comprehensive framework for crypto-assets in the European Union, which eventually led to MiCA); Future financial services regulatory regime for cryptoassets: Consultation and call for evidence, UK Treasury, February 2023 (available here) (proposing a new regulatory regime for cryptoassets in the UK).

28.  See, e.g.,Brief of LexpunK as Amicus Curiae Regarding Plainitff’s Motion for Alternative Service, LeXpunK, CFTC v. Ooki DAO et al., No. 3:22-cv-05416-WHO (N.D. Cal. Oct. 17, 2022) (available here) (challenging the CFTC’s motion for alternative service against token holders of Ooki DAO, a decentralized crypto platform, on the basis that DAOs are not legal entities or persons, but rather collections of smart contracts that run autonomously on a blockchain without any central authority or control). See also, e.g., Brief of Coinbase Global Inc. as Amicus Curiae in Support of Defendants’ Motion to Dismiss, Coinbase Global Inc., SEC v. Ripple Labs Inc. et al., No. 1:20-cv-10832-AT-SN (S.D.N.Y. Oct. 31, 2022) (available here) (arguing that the SEC failed to provide fair notice to market participants that XRP was considered a security); See also, e.g., Brief of Blockchain Association as Amicus Curiae in Support of Defendants’ Motion to Dismiss, Blockchain Association, SEC v. Wahi et al., No. 2:22-cv-02101-RSL (W.D. Wash. Feb. 13, 2023) (available here) (expressing support for the Defendants’ argument for dismissal and claiming that the SEC exceeded its authority by declaring certain tokens to be securities without prior findings and attempting to punish absent third parties who had no meaningful opportunity to defend themselves); See also, e.g.,Brief of Blockchain Association and DeFi Education Fund as Amici Curiae in Support of Plaintiffs’ Motion for Partial Summary Judgment, Blockchain Association & DeFi Education Fund, Van Loon v. Dep’t of the Treasury, No. 1:23-cv-00312-RP (W.D. Tex. April 12, 2023) (available here) (challenging OFAC’s sanctions on Tornado Cash, a privacy-protecting software protocol on Ethereum, as being based on a misunderstanding of blockchain technology and violating the Administrative Procedure Act). 

NEAR has a monolithic mega-booth at Consensus 2023, where there have been a number of awesome NEAR announcements, talks, and events, including the big news out: the Blockchain Operating System is now live on Near.org and the NEAR Horizon accelerator is open for business. If you haven’t stopped by yet to meet our NEAR experts or are unable to attend, we’ve got you covered with all of the highlights.

Let’s take a look at everything NEAR at Consensus, including the BOS, NEAR Horizon, a submissions call for the latest edition of Women in Web3, and much more! And stay tuned for more NEAR at Consensus highlights over the next few days.

The BOS is now live on Near.org

On April 26th at Consensus, NEAR co-founder and Pagoda CEO Illia Polosukhin and Pagoda Chief Product Officer Alex Chiocchi announced that the Blockchain Operating System (BOS) — a real alternative to the Operating Systems of centralized platforms — is now live at near.org. 

As a blockchain operating system for an open web, the BOS is accessible to everyone, not just web3 natives. And it makes Web3 and Web2 easier than ever to access and navigate for users and developers alike. With the BOS, you no longer have to choose between decentralization and discoverability. Devs and users get the best of both worlds, whether they are new to Web3 experiences and want to play around, or developers looking to build an open web. 

Read the full BOS announcement here. 

NEAR Horizon: A revolutionary accelerator for Web3 startups

NEAR Foundation also announced the launch of Near Horizon, a Web3 accelerator program, on the 26th from Consensus. Built on the Blockchain Operating System (BOS), Horizon features a revolutionary marketplace where Web3 startups can find the support they need for building on Near and cross-chain platforms. 

Together with partners Dragonfly, Pantera, Decasonc, Blockchange, Fabric Ventures, dLab, Hashed, and Factomind, and Outlier Ventures, Near Horizon is on a mission to empower founding teams with the tools and support they require to accelerate the development of sustainable, profitable, innovative startups on Near.

Near Horizon’s robust network of support is a game-changer for Near builders, offering new opportunities and resources to propel the best minds in the Near ecosystem to success.

Read the full NEAR Horizon announcement here. 

NEAR opens submissions for Women in Web3 Changemakers 2023

Following its hugely successful launch a year ago, Women in Web3 is back! On Day 2 of Consensus, NEAR Foundation announced the return of its global Women in Web3 Changemakers list.  

Nominations are now open for 2023! Designed to showcase the talented and socially mindful women who make up the Web3 ecosystem, the initiative will once again spotlight ten exceptional leaders across the international sector and the amazing, sustainable work they do.

Members of the Web3 community — both men and women — are welcome to nominate and submit the names of female colleagues who they feel should be recognized for their exemplary contribution to Web3. Women who work in Web3 can also nominate themselves. 

Each nominee should meet the following criteria, which NEAR uses to define impact:

  1. Inclusion – driving ideas that are good for society, sustainable, and socially impactful.
  2. Influence – in the community and among peers.
  3. Innovation – contributing to interesting and socially impactful projects at work or independently.

The top ten Changemakers will be decided by you — the community! 

Important Dates for Submissions and Voting

More details on the voting process will be announced shortly. But here are some important dates.

Those selected will be included in the Women in Web3 Changemakers list, which will be shared with the press and the global community. NEAR will also feature the winners in a special series of video interviews that will air across NEAR’s social platforms and distribution network to share each award-winner’s story and contributions to Web3. Founders of Web3 companies that have made the list will also have the opportunity to meet with investors and pitch for funding at the event.

Google Cloud Unveils Web3 Startup Program 

Google Cloud recently made a splash in the Web3 space by announcing its Web3 Startup program via a Twitter thread during Consensus. Catering to seed and Series A projects and startups, the program offers up to $200K in cloud credits, and access to technical training. Recipients also receive partner perks including discounts on Nansen AI products and platform credits from Alchemy, and Thirdweb’s gasless contract deployment, support, and co-marketing opportunities.

Google’s support of Web3 will benefit founders building on the Blockchain Operating System (BOS) and those partnering with the recently launched NEAR Horizon, an accelerator revolutionizing how founders are supported in Web3. NEAR Horizon will enable founding teams to scale their project with the support they need, increasing the number of founding teams building great products with real-world value on the NEAR Protocol.

To apply, visit the application portal and explore more information on the official website.

Here’s how to get involved:

NEARCON is Returning to Lisbon and NEAR APAC is Headed to HCMC, Vietnam!

Today at Consensus, NEAR Foundation announced that NEARCON will take place in Lisbon, Portugal on November 7 – 10, 2023. In an effort to globally scale and create more accessible events, the NEAR Foundation also announced that NEAR APAC will take place in Ho Chi Minh City, Vietnam on September 8 – 12, 2023. Both events will gather an audience of builders, Web2 and Web3 entrepreneurs, industry professionals, investors, and creators from all over the world.

NEAR APAC will be the NEAR Ecosystem’s first and largest event in the APAC region. NEAR APAC delivers a world-class lineup of speakers to share latest APAC developments, unlimited potential of the blockchain industry, regional market insights, Web3 hacker festival, and insightful events for networking opportunities with local communities and partners. Head to https://nearapac.org/ on May 15th to secure your NEAR APAC tickets!

NEARCON, the NEAR Ecosystem’s Annual flagship conference is headed back to Lisbon. The Mainnet anniversary of the protocol’s launch and the biggest announcements from the Ecosystem will be featured at NEARCON. Hear from some of the most iconic names in Web3 speak on Technical updates, Web2 and Web3 trends, the latest on Governance and Regulation, Arts and Culture, and much more. 

This year the conference will take over two venues: Convento De Beato and Armazem Lisboa. Convento de Beato will host the core conference and will feature two larger stages whereas Armazem Lisboa will be Developers HQ where hackers will build all day. Both venues are just a 10 minute walk from each other. Mark your calendars because on June 1st NEARCON tickets will go live on nearcon.org!  

See you in HCMC and Lisbon this Fall!

Updates from around the NEAR Ecosystem

Mailchain brings encrypted communication to NEAR-based dApps

Mailchain, an open source, multi-chain communication layer for Web3, announced integration with NEAR. Now, NEAR developers can send encrypted messages between blockchain wallet addresses with simple, unified inbox to view and send messages and keep track of on-chain activity. 

NEAR’s vision has always been to onboard the next billion users to the Open Web. With Mailchain, these next billion users can communicate natively with one another, regardless of blockchain. 

Mailchain’s integration with NEAR is a significant step towards strengthening the interoperability mission of NEAR’s blockchain operating system (BOS). NEAR’s BOS and Mailchain are both chain-agnostic, prioritize usability and security, and together make Web3 more accessible and interoperable for users.

“Our vision aligns perfectly with NEAR’s–to onboard the next billion users,” said Tim Boeckmann, CEO of Mailchain. “When building Mailchain, we knew these next billion users would want to communicate with what mattered most to them, their blockchain identities. Mailchain’s secure communication protocol makes this a reality. We believe that this integration is a big step forwards for the developers who are building the next generation of the Internet.”

XP Network brings cross-chain NFT bridge to NEAR

During Consensus, the XP Network, a cross chain NFT bridge, went live on NEAR mainnet. XP Network allows NFT holders to transfer their NFTs to any other supported chain. XP Network recently showcased their cross-chain NFT bridge  by transferring a BSC NFT over to Near via the XP Network bridge, and selling it on Mintbase. 

Now, NFT marketplaces built on NEAR Protocol like Paras, Berry Club, Mintbase, Flux, Few & Far can list the most promising NFT collections from almost 30 other chains. XP Network’s integration will supercharge both arts and collectibles, as well as Web3 gaming on NEAR, with players now being able to buy and trade NFTs in-game across chains. 

kuutamo and Lattitude.sh give NEAR validators access to premium infrastructure

From Consensus, Kuutamo announced its partnership with enterprise-grade infrastructure provider Lattitude.sh, which will give developers and current NEAR validators more flexibility and control. NEAR validators using both kuutamo and Latitude can now access premium infrastructure at a limited promotional price, or apply for the kuutamo x Latitude Program.

A venture-backed technology company, Kuutamo offers a resilient and user-friendly node infrastructure, designed for the peer-to-peer economy. kuutamo launched the world’s first high availability node for the NEAR Protocol, giving users full control and flexibility (no lock-in effect) to execute their desired cloud strategies — differentiating itself from most large public cloud providers in the process.

Latitude is an emerging global leader, offering access to enterprise-grade infrastructure in the world’s most advanced data centers. In its partnership with kuutamo, Latitude is expanding its offering to developers and NEAR validators. Latitude already supports other leading blockchains and Web3 companies such as Solana, Ankr, and Riot Games.

WOMBI brings Web2-style analytics to NEAR

During Consensus, Wombi — a Web3 attribution platform — announced that it is now live on NEAR. With an aim to be the Google Analytics of Web3, Wombi helps decentralized app developers by connecting Web2 and Web3 funnels, so they can instantly see which marketing channels are bringing them the most impactful users. 

Wombi is now publicly available to all dApps fully live or building on the NEAR Blockchain Operating System or Protocol. All developers get free product and marketing analytics, making NEAR the first Layer 1 with a live attribution product. 

Though there have been recent signs of crypto winter thawing, developers have continued to make the most of the current builder’s market. NEAR, in particular, has seen significant growth in new projects and increased adoption over the past year.  

NEAR’s expansion is due in part to some significant upgrades and announcements from its core team. Most recently, NEAR announced its transition to a Blockchain Operating System (BOS), an industry first that further establishes NEAR as the direct entry point into Web3. With the BOS, NEAR is no longer just a Layer 1 — it’s the OS for an open web, free from the centralized platforms of Web2. 

During the announcement, NEAR co-founder Illia Polosukhin signaled that the transition to the BOS was just the beginning of what’s to come for NEAR. With Consensus in full swing, and NEAR’s presence at the conference, many Web3 enthusiasts and NEAR community members anticipate more exciting announcements and were not disappointed. 

At Consensus, NEAR Foundation announced NEAR Horizon, an accelerator revolutionizing how founders are supported in Web3. Made possible through partnerships with Dragonfly, Pantera, Lyric, Fabric Ventures, Decasonic, Hashed, and others, NEAR Horizon will enable founding teams to scale their projects with a wide range of support. This support will, in turn, enable the rapid growth of great products with real-world value in the NEAR ecosystem.

A revolutionary accelerator for Web3 startups

NEAR Horizon is an exciting opportunity for founder teams looking to build their startups on the BOS. Startups can interact with NEAR Horizon through a double-sided marketplace application that connects founders to each other, and to the people and organizations who are best able to accelerate their growth. 

At launch, the marketplace will include over 15 service providers, 40 mentors, and over 300 backers. Founders in the NEAR ecosystem will have direct self-service access to NEAR Horizon, allowing them to make the connections and generate the resources that will help them succeed. In addition to these immediate resources, founders can apply for credits that cover service costs in critical development areas including marketing, legal, back-office finance, product, and infrastructure. 

https://www.youtube.com/watch?v=Fyl1Hlo-rM0

For founders looking for additional support and guidance throughout their Horizon journey, the platform will also be equipped with programs facilitated through a NEAR Foundation partner, providing mentorship, business resources, and a direct line to startup capital. These programs are available through a wide range of industry leading groups including Antler, Brinc, FabricX, CV Labs, Blockchain Founders Group, among others. Regardless of the path founders choose to take, NEAR Horizon will provide them with the support they need when they need it most to accelerate the growth of their Web3 projects built on NEAR.

As crypto winter’s thawing hopefully promises the arrival of a crypto spring, NEAR is continuing to build momentum with both founders and investors in the Web3 community. With higher transaction speeds than Ethereum, a strong commitment to its ecosystem, and an industry-first Blockchain Operating System, NEAR has created a direct path toward success for founders. 

Interested in getting involved? Over the next couple of months, the NEAR Foundation will be onboarding projects and founders to NEAR Horizon. If you don’t want to miss the introductions, advice, capital, or hires that come from the marketplace, reach out and get involved today:

Earlier this year, NEAR announced the Blockchain Operating System. An industry-first category, the BOS is a common layer for browsing and discovering open web experiences, compatible with any blockchain. 

A real alternative to the Operating Systems of centralized platforms, the BOS is now live at near.org. As a blockchain operating system for an open web, the BOS is accessible to everyone, not just web3 natives. And it makes Web3 and Web2 easier than ever to access and navigate for users and developers alike. 

With the BOS, you no longer have to choose between decentralization and discoverability. Devs and users get the best of both worlds, whether they are new to Web3 experiences and want to play around, or developers looking to build an open web. 

Seamless Web2 style onboarding for Web3

When entering Web3, users want an easy Web2-style onboarding experience. Until the BOS, this just wasn’t possible. 

With FastAuth, BOS users get to experience a simple and seamless Web2 style onboarding. Users can get started quickly by creating an account for any app on the BOS — without the need for crypto. 

By putting the user experience at the center, FastAuth creates a familiar style of onboarding experience, in which users can create a free account with biometrics, phone prompts, and an email address. Users can now quickly interact with an app without having to remember long seed phrases and other difficult passwords. 

This will help dramatically move Web2 users into the Web3 space with ease. 

Developers are empowered to start and build quickly

The BOS isn’t just built for Web3 natives. It’s designed for any developer interested in open-source and decentralization. 

To make Web3 app development fast and easy, the BOS offers a comprehensive set of tools and capabilities to get developers started quickly. These developer enablement tools and capabilities make it possible for developers to quickly build composable apps for the open web, as well as build complete projects using current workflows, seamlessly onboard users, get feedback from real users, and increase discoverability. 

From Day 1, any developer can start building on the BOS, making Web3 a more accessible space for all. 

Making Web3 search as intuitive as Web2

Finding things in Web3 isn’t always easy. While decentralization is a core attraction to Web3, this very same benefit can make it hard to discover everything that Web3 has to offer. 

The NEAR Blockchain Operating System fixes this problem with a comprehensive search experience. On the BOS, users can now quickly find all of the apps and components for building on Web3, as well as connect to people and communities. 

BOS users can quickly discover apps, components, and reference documents with an integrated search bar, filtering, and sorting panels. Comprehensive search and discovery also benefits developers, entrepreneurs, and projects across the BOS by exposing their work to a large audience. 

Add and maintain new app experiences with BOS gateways

The BOS also features gateways — access points to Web3 apps that pull front-end code directly from the NEAR blockchain and render it for their users. 

Gateways assume a variety of forms, from wallets and portfolio management tools to popular single-use applications — like, SWEAT — that want to add additional functionality. Gateways help with simple tasks, like adding swap functionality, all the way up to creating decentralized app stores, and much more. This functionality is available by simply adding a JS library, then choosing which app front-ends you want to include.

Typically in Web3, developers spend a lot of time building and getting their apps discovered. During this process, users often need to switch between multiple platforms to discover apps and experiences. Gateways help to overcome this by making it possible to meet users where they already are, while giving them a broader range of apps and experiences. 

Govern your Web3 experience with a content moderation framework 

Traditional content moderation processes — seen most notably in Web2 social network apps— are centralized and often lack transparency, making them ill-equipped to meet the demands of content that is potentially offensive, risky, or illegal. With the growing influence of Web3 platforms the need for an innovative solution that addresses these challenges is more critical than ever. 

The BOS features a scalable, open source content moderation system. With these BOS features, users can govern their own online experience. 

The moderation framework leverages the power of the BOS to tackle the many challenges of managing User Generated Content (UGC) through community engagement and automation, providing a scalable, transparent solution to content review that is easy to use and legally compliant. 

With a decentralized approach and community-driven governance and moderation, the BOS’s moderation framework is poised to redefine content moderation for Web3 platforms and contribute significantly to a healthier online environment for all stakeholders. 

Build and discover apps on NEAR: the Blockchain Operating System for an Open Web

Whether you’re a Web3 developer, founder, end user, or someone just looking to get into crypto, the NEAR Blockchain Operating System is your easy entry point into the Open Web. 

Experiencing the BOS is as easy as visiting Near.org. Let’s build an open web!

The Artificial Intelligence (AI) wave is touching just about every corner of commerce and culture, and retail is no exception. Cosmose AI, one of the leaders in AI and retail, has received a strategic investment from NEAR Foundation to create Web3, mobile, and retail experiences that enhance personalization without sacrificing privacy or security.

“NEAR is the most secure, scalable, and sustainable blockchain protocol,” says Miron Mironiuk, founder and CEO of Cosmose. “As such, we’re grateful for the ongoing support from NEAR Foundation and are excited about what’s to come.”

By utilizing the NEAR Blockchain Operating System (BOS) and AI-powered retail personalization, Cosmose gives users access to their data and personalized recommendations. This move toward a decentralized and user-focused Web3 future emphasizes how AI and blockchain have the power to completely alter current business structures in the retail sector.

With the help of NEAR’s technology and ecosystem, Cosmose can now change conventional retail business models and produce hyper-personalized shopping experiences that increase loyalty and happiness. These experiences will include its flagship mobile application KaiKai and a suite of AI-powered personalization tools.

Personalizing retail with Web3 experiences

Shopper and user personalization is nothing new in retail, but Cosmose is blazing a new trail with the power of its proprietary AI engine. Cosmose’s AI gathers and analyzes user data to produce suggestions and experiences that are uniquely tailored to each user. 

By building on NEAR, Cosmose is able to help retailers develop stronger customer interactions while also addressing privacy and data security issues endemic to Web2 retail data collection. Cosmose and its KaiKai mobile app are trusted by top brands including LVMH, Richemont, L’Oréal, and Estée Lauder.

“Having built on NEAR in 2022 and while working with NEAR Foundation we discovered that our visions for the Web3-driven future are aligned,” Mironiuk continues.

Through the partnership, Cosmose will be able to offer individualized experiences to its worldwide clientele through a number of channels, including online, in-store, and mobile. 

“This investment from NEAR Foundation is a testament to Cosmose AI’s strength and potential to revolutionize e-commerce and the retail industry,” said George Raymond Zage III, founder and CEO of Tiga Investments and a Cosmose board member. “We’re excited to see Cosmose AI’s continued growth and success.”

KaiKai: Introducing “Shoppertainment” on the NEAR Blockchain Operating System

KaiKai, Cosmose AI’s flagship product, shopping, retail, and gamification to create a new category altogether: Shoppertainment. The mobile shopping experience is constructed in a very unique way, using the BOS aa backbone to make brand discovery and engagement more fun and rewarding.

Some of KaiKai’s features that brands are already using include:

KaiKai also features a native cryptocurrency called Kai-Ching, which users earn and spend like any other retail rewards program. The difference is that Cosmose’s AI provides more personalized recommendations and rewards suggestions, with customers easily transacting on the NeAR blockchain with a native KaiKai crypto wallet.

“We’re excited to support Cosmose as it continues to scale rapidly and create new ways for retailers to offer customers the best offline and online shopping experiences,” noted Marieke Flament, CEO of the Near Foundation. “Cosmose has already been building on NEAR testnet, and with this additional support it will have many more opportunities to grow and expand its offerings with Web3 in a sustainable, transparent, and infinitely scalable way.” 

Flament added: “Cosmose’s excellent AI innovation will help to intensify its global marketplace lead, and with superior AI-driven personalization, its user base will undoubtedly continue to grow as new and existing customers are seamlessly transitioned into the world of Web3 and all the exciting opportunities it brings.”

It’s no secret that AI is turning industries, communities, and business models on their heads – and that’s not a bad thing. NEAR Foundation’s commitment to developing Cosmose’s retail technology, including KaiKai, signals that consumers will now be even more empowered with more personal recommendations, a “shoppertaining” experience, and the sound of “Kai-Ching” as they earn crypto rewards powered by Near and BOS.

“Together we’ll build a future where one billion users benefit from the ecosystem they’re part of, with complete control of their data and superior AI-driven personalization,” said Mironiuk.

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