Digital Assets, DeFi, and the Difficulty of Establishing a Balanced Commercial Law Framework
In Wyoming’s legislation around digital assets, they define the term to mean, a representation of economic, proprietary or access rights that is stored in a computer readable format, and includes digital consumer assets, digital securities and virtual currency. This Uniform Commercial Code update goes on to define digital consumer assets, but they draw a distinction between digital consumer assets and digital securities. Most of us are blissfully unaware of the nuances and difficulties inherent with amending the Uniform Commerical Code (while this is done at the state level, the vast majority of the time the state UCC is reconciled so as to be “uniform” across the fifty states). Wyoming took a strong first step and now other states are working to determine the right balance of change and uniformity in order to ensure solid commercial law and bring clarity to the digital asset space.
While organizations like the Uniform Law Commission and the Texas Blockchain Council are working to provide recommendations to legislators for updates to laws that will strike that balance, entrepreneurs and businesses are hard at work building innovative blockchain technology products that appear poised to disrupt a variety of industries. DeFi and the digital asset ecosystem are two related areas that are top of mind.
At time of writing, there are $15 billion dollars locked in DeFi contracts with annual yields that vary drastically depending on the level of risk (most range from 2%-15%). While there is not time to dive into the complexities of DeFi and Yield Farming here, those wanting to know more should check out TBC member company Interaxis (https://www.interaxis.io/) as they are an education platform for RIAs and anyone else who wants to learn more about the space.
Another innovative application for blockchain is the emergence of digital asset securities. Granted, the term digital asset is a bit ambiguous, the reference in this instance is referring to a digital representation of something of value that can be subjected to control (and for our purposes we will say that they are recorded on a digital ledger). Suffice it to say there is some debate around how this term should be defined. Regardless, digital assets, and specifically security tokens, are revolutionizing the way we conceive of securities and other financial instruments. There are innovative firms working on adding value using blockchain in equity securities, real estate, debt and other kinds of securities. Take for instance the case of commercial real estate. Typically, this is an asset class reserved those with significant financial means. But imagine a world in which everyday people who do not consider themselves investors could invest modest amounts in commercial real estate because the transaction costs and other obstacles are no longer cost prohibitive. Also imagine if an investor could liquidate say 15% of their real estate investment by selling to anyone on a marketplace that same percentage of his investment in tradeable tokens. These scenarios are not futuristic predictions, but rather current offerings that are gaining market adoption. For more information about this process, look to TBC member companies like Vertalo (https://www.vertalo.com/) and Iownit (https://www.iownit.us/).
All of the companies listed in this brief article are based in Texas. For a full list of the Texas Blockchain Council’s member companies click here. Reach out to us if you are interested in helping us achieve our mission to make Texas the jurisdiction of choice for blockchain innovation.