Imagine for a second you’re among the crypto wealthy building a new nation.
Maybe you’re growing CityDAO into a NationDAO...
Or perhaps you just bought a small degen island for you and your avatar frens…
However you came into possession of a new country, you recognize you need some sort of government in place. You agree to rebuild it from scratch built on the principles of openness and transparency that made cryptocurrency so successful. You and your buddies fire up a constitutional convention and architect a series of smart contracts and/or a DAO that covers the essential functions of a government: providing for the common defense, promoting the general welfare… all the old saws.
You’ve worked hard through the night and you work your way to the bottom of the priority list: “protecting retail investors.”
You and your sleepless friends aren’t really sure if it’s that important to rebuild the SEC in your new crypto utopia paradise. But fueled by adrenaline and a spirit of optimism, you all agree to hammer it out. And this time you’re going to do it right!
What does it look like?
For starters, you’re not relying on arcane and irrelevant laws from almost a century ago to try to police the space. The Securities Act was passed in 1933. This not only predates the transistor, the credit card, and the Monopoly board game, it predates the common usage of the telephone. Trying to regulate cryptocurrencies based on an era where most information was broadcast through newspaper and radio, with the post office central to correspondence, bears little relation to our modern era.
A large libertarian-leaning faction vocally argues the best SEC in your new utopia is nothing. Right? Crypto is a beautiful frontier, filled with risks and rug pulls. A lot of people lose a lot of money, and for some vast fortunes are made. For most people it’s just fake internet money, so it feels like a spin at the casino.
Yet you’re crypto idealists, so a vocal minority posits that you can actually do better than nothing. Let’s imagine a positive SEC, built to help people in the crypto community. In several countries people actually think positively of their governments because they focus on providing positive services… institutions like a well run library or an effective fire department.
The thing is, crypto does have some garbage elements we agree could be cleaned up. In decentralized fashion, a lot of players in the space have filled in these gaps and created institutions to help the space thrive. Off the top of my head:
Etherscan hosts the greatest “I can’t believe it’s free” services on the internet.
OpenZeppelin has hastened safer EIP adoption and development with their robust open source frameworks.
The Ethereum Security community does good work tracking and fighting against hackers.
The team at Tether have earned goodwill and status from fighting off so much FUD and establishing the first viable stablecoin.
Many DeFi protocols take good care of each other and donate to each other after hacks.
GasNow.org, RIP
Brave, the Ethereum Foundation, etc.
You argue to your peers, could we create a DAO that encompasses the positive features of these leaders? You proppose an SEC-DAO focused on:
Reviewing and helping audit smart contracts
Developing and maintaining open-source tooling
Creating and hosting educational materials
Fundraising for bug bounties
Legal help for developers attacked by SEC 1.0
Maybe it can even host a Web3 site that’s so useful and trustworthy, protocols want to launch on their homepage. The SECDAO.eth site could provide so much information to users in the form of reviews and security checks that users eagerly check the site each morning over coffee.
Arguably your SECDAO could one day fund itself by developing smart contracts to ensure safe aping into common protocols — contracts that allow users to ape into protocols with sort of insurance for nervous newcomers. It may be tough to structure, but it could be useful if you get it working. You’re just spitballing at this point… the SEC-DAO can vote at a later date if it wants to incorporate such features into its mission.
Would this work? Who knows. You might agree it’s easiest to start with the “no SEC” approach and leave it to governance to implement SEC-DAO at a later date. You might launch it to find the idea fizzles and dies. Or it might be a hit, gaining the sort of soft power and clout obtained by the aforementioned institutions as a result of demonstrating benevolent leadership.
Are there risks of an SEC-DAO? Could it turn evil like SEC 1.0? It’s tough to imagine what an evil DAO looks like at this early juncture. If SEC-DAO tried to turn evil like the existing SEC 1.0, one would imagine an SEC-DAO that evolved into a black hat hacker den. The evil SEC-DAO would identify weak protocols and drain their funds into its treasury to offer them “protection.” An unfortunate turn, however one would hope that the broader governance community would shun them as pirates instead of partners should they turn evil.
Whether or not your new cryptopia chooses to build such an SEC-DAO into your new architecture, this thought experiment reveals a lot. Consider just how radically distant this vision of a positively focused SEC-DAO is from the current SEC. It’s unrecognizably different
In other words… if we imagine the perfect SEC, then compare it with the one we paid our representatives to create… the one actually manifested itself into this world… we find what emerged was the exact opposite. Whoopsie!
Reposted from https://curve.substack.com/p/oct-1-2021-reimagining-regulation?r=br6us