Hire A Lawyer for Gaia

This is very much an in discussion topic.

Remove NTRN from ICS

Generally I think the Cosmos Hub probably needs to start paying for legal analysis that can be shared publicly about it’s systems.

https://twitter.com/gadikian/status/1667022940549033986

https://twitter.com/gadikian/status/1667025168945008644

Binance

comp-pr2023-101.pdf

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The cosmos is featured from the end of page 104 to page 107. The binance complaint seems to include numerous factual inaccuracies.

Coinbase

comp-pr2023-102.pdf

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Pages 87-92.

Big idea

Thing is, I am not a lawyer. I am merely a former history teacher and lifelong open source enthusiast. I think that the hub needs a lawyer. I just want to open the conversation here, before kicking off a governance proposal to hire a lawyer to defend the rights of our community, or at the very least, provide advice to the community at large.

Today, in the GVA (Good Validators Alliance) @RoboMcGobo, one of the chat admins there, suggested a strategy, but I would like to allow him to further expand on that.

I’m not a lawyer, but I struggle with this.

I worry bringing the Hub into meatspace with legal council expands the potential regulatory attack surface.

The Hub being a digitally native sovereign territory means it doesn’t have to answer to any regulatory body (especially the only regulatory body that has deemed its currency a security).

I cant see how hiring legal to defend the Cosmos tech stack (not just the Hub) doesn’t fall under the ICF mandate. The Hub itself should stay far away from this imo.

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I’ve been summoned by the Gadikian to give some input here, so I’ll just jump right into it. This stems from a tweet that I made this morning, which you can find here: https://twitter.com/RoboMcGobo/status/1668252699794522114?s=20 This idea is somewhat half-baked and I would like more input on this from an experienced attorney, but the TLDR here is that if any of the allegations in the Binance lawsuit require a threshold determination by the court that ATOM is a security, the court’s decision may have far-reaching impacts on the Cosmos Hub and, naturally, the ATOM token. If that’s the case, the lawsuit is depriving the Hub of its day in court to contest these issues, deciding the Hub’s fate without giving the Hub the opportunity to defend itself. This potentially makes the Cosmos Hub an “indispensible party” for the purposes of jurisdiction. Failure to join an indispensible party to a lawsuit can potentially lead to a case being dismissed. Here’s the relevant FRCP section for anyone who is interested: Rule 19. Required Joinder of Parties | Federal Rules of Civil Procedure | US Law | LII / Legal Information Institute To be clear, there are a LOT of maybes and…

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Basically this: https://twitter.com/zmanian/status/1668308921616936967?s=20

If the SEC is arguing that ATOM is a security because a few people’s labor in building and promoting the hub is enriching investors who have an expectation of profit, and then those exact people show up in court to intervene in the lawsuit, we’re kinda proving their point for them.

Hey, y’all. Some of you may recognize me from being a constant Cosmos reply guy on Twitter, but as an attorney, I felt like I had to make a profile to address this issue. My feelings on this issue are two-sided. First, McGobo’s argument regarding the SEC’s failure to join an indespensible party to a lawsuit is a legitimate one, but it needs to be remembered that, as of right now, the SEC is not asking the court to make a finding that ATOM or any other specific crypto is a security (see, PRAYER FOR RELIEF in the Binance complaint at Pg. 133). However, an essential part of the SEC’s case against Binance is proving that Binance sold securities, so the SEC is going to have to prove that at least one of the cyrptocurrencies that they list is a security and their allegations that ATOM is a security are found in Paragraphs 429-437. Specifically, the SEC alleges in Paragraph 434 that the efforts of ICF, Jae, and Ethan are what created the expectation of profit from investors: “The information publicly disseminated by ICF, Kwon, and Buchman has led ATOM holders, including those who purchased ATOM since April 2019, reasonably to view ATOM as an investment in and to expect to profit…

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This is awesome feedback and the exact sort of input I’d hoped to get when I made my tweet this morning. A quick question on this:

Summing up, I don’t think the Hub itself needs to lawyer up. If anyone would lawyer up to try and ascert this FRCP Rule 19 defense, I think ICF would be the party to do so.

My thinking on why the Hub would be the interested party in this matter is because the Hub is effectively the issuer of the asset being claimed as a security in this matter (such issuance being made programmatically by the chain’s core logic and not by the ICF, Jae, or Ethan). The Cosmos Hub in and of itself is an on-chain DAO of 100k+ ATOM holders, of which those individuals / orgs are only 3 members.

Since the whole DAO, and not just those 3 members, is implicated by this court’s decision, wouldn’t the broader DAO be the appropriate entity to intervene? Also, if the ICF for example were to intervene in the suit on behalf of the DAO, wouldn’t that involvement effectively give credence to the security argument and prove the SEC’s point?

@jflowers515

that was pretty awesome, thank you and please do stick around <3

My thinking on why the Hub would be the interested party in this matter is because the Hub is effectively the issuer of the asset being claimed as a security in this matter (such issuance being made programmatically by the chain’s core logic and not by the ICF, Jae, or Ethan). The Cosmos Hub in and of itself is an on-chain DAO of 100k+ ATOM holders, of which those individuals / orgs are only 3 members. My reading of the Howey family of case law is that, because ICF was the party that was making the representations to ICO investors of the “expectation of profit,” that ICF would be the party the SEC would go after. Hub/Gaia might be the ones responsible for the ongoing issuance of the ATOM coin, but it didn’t necessarily make those representations to investors that ICF allegedly did. So I wouldn’t want the Hub/Gaia to get involved as a DAO because they haven’t been specifically named in the SEC’s allegations. The allegations are against ICF, so ICF should be the one to come and defend itself against the SEC if it deems it necessary. The SEC has a history of wanting to go after fact patterns that are distinct and have already started and ended (like an ICO) because then you…

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effortcapital:

The Hub being a digitally native sovereign territory means it doesn’t have to answer to any regulatory body (especially the only regulatory body that has deemed its currency a security).

Hey effort!

Great to see you here. My rebuttal is that sovereigns do what they’d like to, including their defense.

wdyt ser?

I definitely share @jflowers515 's concern. I don’t think we should be too quick to jump into the fray by intervening in the SEC’s suit against Binance. I’m also not a securities litigator, but (as Jake pointed out) it’s clear that several of the SEC’s claims against Binance and Binance US (namely for failure to register as a broker-dealer/clearing house/exchange) require them to establish that at least one of the assets listed on each exchange is, in fact, a security. I fully suspect that they’ll focus on BNB, as they have separate claims against Binance as the issuer of BNB and BUSD and they devote 4-5 pages of the Memo of Law in support of their Emergency Motion for TRO to fleshing out the argument that BNB is a security. that being said, I agree that there would have to be a very good reason to risk putting a target on ATOM’s back by filing a motion to intervene. even assuming ATOM were to successfully intervene in the case, I have doubts about whether it would have standing to file a motion to dismiss for failure to join a necessary party. I’d need to do some research here, but my gut reaction is that that if ATOM were to successfully intervene in the suit, then it would no…

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perhaps those named in the lawsuit should talk to their lawyers regarding disclosures and a path toward compliance, like DOT seems to have done. The stake holders only need a lawyer to advise them of the risk NEUTRON poses to Americans receiving what Neutron itself deems a probable security, and therefore an unregistered security.

From a quick glance I think I might be the first lawyer to weigh in here. I don’t have a lot of spare time/energy at the moment but figured I should add a few thoughts: • I tried to create a framework around how an attorney might attempt to do something like what is being suggested. Can’t post links but google “Autonomous Lawyering gabriel shapiro”. • LeXpunK also has some potentially related resources in its DAO Defense Protocol. Can’t post links but look on LeXpunK’s github. • While I am a fan of these experiments, I am also vividly aware of their downsides/limitations (especially in a litigation context), and think it’s important to note them: –>‘lawyering in public’ is fundamentally incompatible with the concept of attorney/client privilege/confidentiality and thus is fundamentally at odds with the philosophy of DAOs –>there is no clear client who the lawyer could represent in public for the benefit of the entire DAO and thus the lawyer would be limited to describing concepts/providing information but would have to avoid giving legal advice –>this discussion, and any discussions that the lawyer would have publicly or analyses the lawyer would publish, are in a…

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Working with Coin Center, Proof of Stake Alliance, or another nonprofit to file an amicus curiae brief might be useful. Solana appears to be working on filing their own amicus brief. I’m not sure that “bringing the Hub into meatspace with legal council expands the potential regulatory attack surface” or that “ICF would essentially be putting an automatic target on its back for the SEC to go after because ICF has now identified itself as the entity that sees itself as the most incentivized to defend ATOM’s status as a security or not” or that it would “risk putting a target on ATOM’s back by filing a motion to intervene.” To wit, of the four prongs of the Howey test, not one of them hinges on whether an enterprise can hire legal representation or make legal filings. (Rather than trying to file a motion, I think an amicus brief, potentially with other identified chains, might be more appropriate.) That said, I do agree that the SEC’s suit is largely focused on ICF/AiB as the beneficial issuers of ATOM during the ICO—they are the ones implicated in the lawsuit and do, as private entities, have to decide if they want to represent themselves. It would be nice to hear from them…

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couldn’t it be argued that the governance power sold by ICF/AiB at the ICO was sold and/or transferred to a “board” of validators who then functionally maintained governance power in aggregate over ATOM, keeping it a security long after?

I have absolutely no idea and that is why I think the hub needs a lawyer

I am strongly opposed to the idea of the hub having a lawyer for several reasons @jflowers515 has stated. Moreover, I believe that legal counsel is unnecessary at this time.

If the hub seeks greater clarity regarding the current situation, I would suggest hiring an independent reviewer to assess the hub’s circumstances instead. However, considering the current ambiguity of the legal landscape, this may not necessarily provide assistance in the future.

Thanks a lot for your opinion here, I think that I disagree but I’m really glad to see people participating in this conversation because I’m not certain I disagree, I feel more like this is something that we should explore thoroughly

Couple thoughts on this. Is it clear whether the SEC is naming the Atom token on the Cosmos Hub chain as a security or the representation of that token traded on Binance software?
When Binance did proof of reserves they had almost no native atom in their wallet…though trading Atom on the exchange software is significant volume, far in excess of what they had.
I think it would be better to let Coin center or another trade/industry association be the way to fight on behalf of a protocol. Keeps from making the protocol look like a centralized entity. Maybe a community vote to support financially what Coin Center is doing as they have several suits they are considering filing against SEC.

I think that a decentralized community can hire an attorney and it’s fine, I think that it would only threaten the decentralization of the community if that attorney was able to make decisions on behalf of the protocol but what the protocol really needs, at least I think, is just advice we need to know what’s going on

Genuinely I really don’t

I’ll grant you that no one really knows what is going on. But the precedent of a decentralized community hiring a lawyer, especially at this stage, seems a bit hasty. I would rather see the community consider a donation to coin center and let them coordinate the efforts from several ecosystems.

Hiring an attorney does not centralize an entity and does not “put a target” on an entity—in point of fact, the ATOM token has already been targeted in an SEC lawsuit, albeit indirectly. (Note as well: The CFTC was fully able to prosecute Ooki DAO, and in fact they got default judgments against Ooki DAO because they did not hire representation or appear in court—they are now ordering the total shutdown of Ooki DAO, with civil and potential criminal liabilities for those who remain.) If the Hub is going to continue pursuing “ATOM Economic Zone” plans through ICS or AADAO, it absolutely needs an attorney or legal firm to advise stakers on these substantial, complex commercial arrangements using other people’s money and the Hub’s (and/or validators’ and AADAO members’) potential compliance requirements and regulatory exposure. There is no magically sovereign Internet-land which escapes the reach of real-world jurisdictions. Even sovereign real-world jurisdictions must comply to some degree with each other, or they court serious economic and other blowback. There will always be neighbors, even in Web3. This is not inconsistent with the vision and understanding of Web3’s…

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This argument can certainly be made in a legal filing, but whether it will stand up to scrutiny depends on a bunch of facts and circumstances that I don’t have on-hand—the fact that stakers are able to vote and override the vote of their validators seems to me (this is not legal advice) to provide some defense to this claim. For instance, in Rivana Trawlers Unlimited v Thompson Trawlers Inc , a federal court found that members’ choice to remain passive is not sufficient to establish a securities designation—but note this is a non-binding federal decision, not a SCOTUS ruling. Palmiter comments specifically on crypto ICOs: “To date, Howey has provided the framework for determining whether cryptocurrencies and ICOs warrant regulation under the securities laws. Under Howey a security appears to exist when coin/token buyers have a common interest in the value of the cryptocurrency rising because of the efforts of a promoter (even with some participation by the coin/token holder) to develop a network backed by digital or other assets. […] But a security seems not to exist when the network is decentralized, depending on the efforts of no specific promoter or group, and where the…

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If ATOM is a security then validator has a duty of care to its delegations to act in their best interests. Every single major validator has a legal team. It’s absolutely irresponsible and reckless to not have stakers have an independent non-conflicted representative. ATOM will be classified a Security as part of this law suit. Unless someone files an amicus brief that distinguishes clearly that ATOM has not been joined and is not party to this suit, if it is then it should be mandatorily join all the interested parties (all stakers on all chains named) like any other SEC lawsuit brought on behalf of the people it is supposed to be protecting from some type of fraud or criminal activity. CoinBase and Binance clearly offered atom as a security. I’m a lawyer. That’s easy. Done deal. Whether or not the leap is made to validators offering staking as a service is distinguished properly and whether or not the ecosystem and the token itself outside of these lawsuits operates is only going to happen with lawyers. Damn good ones. SEC is backdooring a ruling that these 12 tokens are securities……Period. The suits will get settled. The point of these suits is to classify these 12 chains…

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We just need to explain what factually ATOM is and do it in ATOM stakers best interest. Binance Coinbase and the SEC are not going to make any arguments for us or explain any aspect of Cosmos outside these facts and case

I think the limitations on a lawyer to advisory or simply unbiased specialized legal knowledge with the Hub not AiB or Notional or Golden Ratio or ICF as the lawyers perspective provides so much needed just trust that would actually bridge many of the infighting and gaps and nonsense occurring in the hub.

Filing mentioned ATOM is SEC complaint alleging AiBs is the third party relied on to create expectation of profit. Okay? Someone can you just give me a straight answer on what the potential actual real world consequences and outcomes potentially are, and let stakers make decisions for themselves when it is a decision that shouldn’t be left to conflicted validators with conflicting interests.

My defense is sovereign immunity. Never would the US hold a Saudi Price let’s say accountable for outright murder of its own US citizens as long as it was done within the jurisdiction of the Saudi Price. King rules the castle. Make a moat.

Flo:

If the hub seeks greater clarity regarding the current situation, I would suggest hiring an independent reviewer to assess the hub’s circumstances instead.

You just described an attorney. The legal counsel doesn’t necessarily have to engage in motions practice and get involved with the litigation of the SEC’s enforcement actions and motions practice as noted above, but having some kind of legal counsel to provide the Hub with guidence on securities law and advise how the Hub can best position itself to avoid SEC scrutiny would be the exact role of the “independent reviewer” you described. No one else would be better suited to give this advice (or legally able to) than an attorney.

There is a difference between hiring an attorney to represent the hub and paying a reviewer to create an independent report at least where i come from. Both may be attorneys though.

I believe we need to make a clear distinction here. If ATOM is deemed a security, it may not have any impact on validators.

In my opinion, if ATOM is classified as a security in the US, it would mean that no CEX can offer ATOM trading unless it gets registered with the SEC in compliance with their regulations. However, this doesn’t necessarily imply that the SEC will immediately prosecute any entity associated with Cosmos for launching an unregistered security, although the likelihood of such action is high.

For validators and the network itself, this doesn’t hold significant implications since the network operates outside the jurisdiction of the SEC. However, if a considerable number of validators/VP are based in the US compared to other countries, the SEC might argue that the entire network and all of its transactions fall under their jurisdiction, which should ideally be prevented.

The biggest reason I see here has nothing to do with the status of the atom as a security, or not. Because I’m familiar with the software development, community and cosmos, I know, for a fact that we are really just a bunch of big geeks with keyboards, and you know what else is made with keyboards?

That’s right, books! The current situation with regard to the regulation of cryptocurrency, completely neglect, the fact that the first amendment actually exists, and is real, and that Americans have a constitutionally protected right type, whatever the hell they’d like to into their keyboards.

At least now, we also have the right to run whatever code we would like to on whatever device we would like to, and it is my opinion that the endgame of all this stuff, is the loss of both first amendment, rights for authors of open source code, and the loss of the right to choose the software that runs on the devices that you choose to purchase.

To me, that is the most significant development in the recent regulatory environment. We genuinely have politicians in the United States, who are openly calling for restrictions on these basic freedoms.

I agree with all of that. However, I still don’t see how hiring an attorney for the Hub chain helps. That battle is going to be litigated by coincenter and the like. Helping them is the most beneficial way to go.

I propose to hire a person that will ignore all existing laws and chase lawyers away with (physical) sticks from Cosmos and from crypto in general. Or, for example, we could develop a tech, every time someone mentions applying law to web3, they would get a tiny electric shock coming from their keyboard. Just saying…

The Hub needs an attorney regardless of the SEC’s current cases. The Hub is being pulled into complex, sophisticated, large-scale financial arrangements through ICS and subDAOs, and there will surely be other potential arrangements to come as the tech develops. The innovations of the tech do not really alter the underlying economic realities taking place, and it is not the particulars of the tech but the economic realities that are regulated by financial authorities (SEC, CFTC, IRS, et al) and require professional legal review. Any organization with a $3bil market cap has attorneys reviewing its mergers and acquisitions, subsidiaries and spin-offs, etc. As long as the Hub is acting as an “economic zone,” it needs professionals who are attentive to the economic realities that are taking place and making appropriate disclosures to the parties materially affected by those realities. To be clear, this extends far beyond securities concerns. I personally believe securities issues are the least of our worries. The Hub and many Cosmos chains have set up “Community Pools” without any legal structure around them, meaning with every spend proposal they are racking up unstructured…

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Blockchains and legal battles – not exactly the future I envisioned for space travel and intergalactic economies.

Thank you for that comment person. We need a lot more of these comments

We would like to quote a section of the essay we published in this post which seems particularly aligned with the debate around the necessity have a legal defence, or not. C: Sovereign Authority: The key element to highlight here is the notion of sovereignty. For an entity to be recognized as a state, it must exercise effective control over its population and territory, while having the capacity to manage its entire state sphere. […] The crucial question now is whether we will allow centralized entities to govern these territories as sovereign authorities, or if we have the opportunity to lead a revolution using blockchain technology. Source: [ESSAY] Cosmos Hub: The First Democratic State of Capital Given the previous quote, it becomes apparent that existing states are unlikely to acknowledge a new digital peer. This raises the question of whether we truly need this approval. At this point we see two types of possible responses: • Advocates for approval may argue that a legal representative is necessary to defend against potential attacks from established governing bodies. • Conversely, proponents of the Blockchain governance as a revolution may argue that any…

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Govmos:

We firmly believe that the Hub is sovereign, transcending the governance of existing states. Nonetheless, individuals affiliated with this digital state are also subject to the legal frameworks of their respective physical states based on residency. However, the legal systems of these independent states should not dictate the governance of the Hub, especially considering the dispersed nature of its constituents across various physical states.

I typically don’t agree with you.

So I want to note that I agree with you strongly here. And also note that you seem to have developed a good mental model for hub sovereignty.

With all due respect, we generally don’t agree with you either! Yet we have similarly noted some of your contributions to Cosmos that were definitely valuable. Let’s say that we are on the same page here, being able to recognize someone else’s strength despite our divergences is testimony of a highly constructive policy debate. So… thank you for being here Jacob, let’s just embrace our different view points and try to remain constructive when we diverge.

@jacobgadikian @Govmos

There’s not a lot inherently different with decentralized systems and traditional systems. In fact - drawing comparisons between decentralized systems and distributed systems is kind of murky especially since there can be immutable distributed systems, but there is legal guidance statues that should inform the practicality of our assessments - or - we should be able to clearly explain
what sets us apart from those legal precedents.

There is a notable difference in 2024:

• Technology is maturating at such a rate that it could be more effective at doing many people’s job and that it will require all of civilization to assess what kind of socio-political world we will live in.

Govmos:

We firmly believe that the Hub is sovereign, transcending the governance of existing states.

Very interested in how you establish this new precedent with quality debating points. Please do tell.

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