The Otonomist - May 2022 Regulatory Special

On this last day of May, we’re posting on the regulatory foreboding out of Europe, where proposed new crypto rules risk veering the E.U. towards indiscriminate surveillance of its citizens. Part I and Part II analyze the proposed rules, with Part III commenting why they are wrong on so many levels. We conclude with a piece on legal risks in DAOs.


Adieu Europe: A Sense of Regulatory Foreboding from Brussels

A cage of our own making: Proposed E.U.rules, if adopted, would turn blockchains into tools for financial and privacy repression (Graphic courtesy of The Munk School of Global Affairs, University of Toronto).

On 14 March 2022, the European Parliament adopted its proposed draft of the Markets in Crypto Assets (MiCA) regs.

Parallel rules together with proposed amendments to existing regs referred to as the Transfer of Funds rules (TFR) are also winding their way through the legislative process.

Both proposals, in our reading, represent a clear regulatory capture by the traditional finance industry in the E.U. who are exploiting the present lobbying vacuum of the crypto community to influence new rules that aim to nip the perceived threat of decentralized finance (DeFi) in the bud.

They do so by smothering “non-financial assets” in a raft of proposed new regs that in many instances go beyond rules applicable to legacy financial assets and financial services providers in the E.U.

Crucially, the proposed rules go for the jugular of the crypto space by aiming to prohibit self-custodied (we prefer to call them “unhosted”) wallets, forcing full disclosure of both sender and recipient of any crypto transactions above EUR 1,000 under the so-called Travel Rule.

Such rules could become law thanks to TradFin’s guaranteed voice in the legislative process and the absence of an organized, well-funded crypto lobby in Brussels.

This post is both an analysis and an appeal to the crypto community to help avoid E.U. citizens from sleepwalking into a mass surveillance regime, by putting forward the key arguments why these proposed rules are wrong on so many levels.

  • Part I takes a closer look at the proposed MiCA rules.
  • Part II then analyses the proposed Travel Rule and its practical implications.
  • Part III lists what we believe are the key benefits of DeFi as an emancipatory technology, maps the lobbying efforts by the crypto community in Brussels, and appeals for a “Litigation DAO”.

PART I - Of MiCA and Men: A Clear Regulatory Capture by TradFin Aiming to Put Crypto at a Disadvantage and Nip DeFi in the Bud

On 24 September 2020, the European Commission (EC) adopted an expansive new Digital Finance Package with which it hopes to transform the European economy in the coming decades.

The package alleged aim is to improve competitiveness of the continent’s Fintech sector and technologies, while mitigating risk and ensuring the financial stability of the European economy.

The new regulatory framework also included the a comprehensive new legislative proposal on crypto-assets referred to as the Markets in Crypto Assets (“MiCA”) regulations.

In this first part, we take a closer look at the proposals as they stand, their potential impact on the crypto industry in Europe, and the timeframe towards adoption.

PART II - Have Money, Will Apply Travel Rule: The Death Knell for Unhosted Wallets

In this second part, we analyze the travel rule as part of the proposed Transfer of Funds Directive (TFR) and its practical implications.

Such travel rule, combined with MiCA’s broad definition of who is considered a Crypto-Asset Service Provider (see Part I), would create a situation in which CASPs who receive or send transactions to a self-hosted wallet are required to collect, store and verify information on the other party - i.e. the owner of the unhosted wallet who is not a customer of the CASP - to approve the transaction.

In addition, the TFR lowers the threshold of reportable transactions to EUR 1,000 vs. the EUR 10,000 threshold for fiat transactions that need to be reported to authorities, and includes all crypto transactions, not just the ones that are deemed suspicious as is the case with current fiat banking rules.

All in all, the proposed travel rule for crypto assets treats citizens who hold crypto different from those who hold fiat since every crypto transaction would be subject to the travel rule, which has unintended and no doubt intended consequences.

PART III - Sleepwalking into Mass Surveillance: Europe’s Last Chance to Be the Beacon of Privacy and Innovation

In this last part, we list what we believe are patent benefits of DeFi as an emancipatory technology.

We argue that such benefits cannot possibly be controversial and benefit the broadest group of people, hence their repression can only be as a result of coordinated lobbying by special interest groups.

We then map the nascent lobbying effort by the crypto community in Brussels as a counterweight to the established efforts by TradFin.

We close with an appeal for a “Litigation DAO” to prepare for a court challenge of the proposed rules if they were to be adopted in their current or in similar form.


Shielded: DAOs should take care to shield themselves from unlimited liability.

For many people, when they imagine a DAO, they imagine a crowded Discord server or Telegram chat, essentially a group of people working together on a common goal.

Those goals are often small, like running a social club or raising awareness for a popular cause. But the goals can be as big as building a billion dollar protocol.

In this post, we look at some of the legal risks of free association.

Next month: In our June Otonomist, we go back to our normal format with i.a. an update on new OtoCo features, a post on Otonomos’ roadmap and unbounded thinking on DAO governance. In your inbox on the last Thursday of June.

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