Key Takeaways From the Brown Rudnick Global Blockchain Conference

20 April was a big day in the crypto industry; EU Parliament voted in favour of both the Travel Rule Regulation (requiring the collection, storage and exchange of customer information by crypto operators when transacting in crypto assets) and the proposed MiCA regulation, a comprehensive framework aimed at standardising the regulation and licensing of crypto assets across EU member states. 

But even bigger than that was Brown Rudnick’s inaugural blockchain conference at The Londoner Hotel, sponsored by Novum Insights, Grant Thornton and the Global Blockchain Business Council. Attended by over 175 speakers and delegates from the most prominent crypto exchanges and platforms, investors and venture capital funds, and other crypto natives, it was a day filled with discourse, debate and dynamism about the industry’s past, present and future.

The day kicked off with a keynote delivered by Toby Lewis of Novum Insights to present research findings from a report prepared in conjunction with Brown Rudnick on Equity Finance and M&A on crypto and blockchain available here. The colourful charts show strong activity and ongoing interest by investors and funds despite recent crypto market crises - a sentiment echoed by Xavier Segura of Morgan Creek and Quynh Ho of GSR as well as our M&A partners Neil Foster and Scott Smedresman who have been working on a number of transactions in this space. Our prediction is that strategic M&A and access to finance will help to consolidate the market and lead to maturation and growth in the crypto and blockchain industry. 

Picking up on some of the key themes that permeated panels throughout the day:

1. Trust & transparency: Liquidity issues and crypto collapses may have had a chilling effect on the industry but crypto fraud remains rampant as bad actors  continue to create novel ways to exploit investors and consumers in the space. However, one of the positives of this has been an increased focus on building greater trust and transparency in the industry. Crypto firms are engaging constructively with regulators and industry groups; crypto operators are establishing minimum compliance standards and using analytics tools to monitor and screen transactions for fraud, money laundering and sanctions issues, and are engaging in meaningful audits to test security and review smart contracts. Demonstrating a willingness to help combat fraud, centralised international crypto exchanges and platforms are complying with English court orders obtained by victims of fraud seeking to preserve and recover stolen crypto assets.
2. Jurisdiction shopping: We are seeing the start of an exodus from the U.S. as a result of the approach to regulation by enforcement by various U.S. authorities and whisperings around operation chokepoint 2.0. Historically we have seen jurisdictional arbitrage in the industry with some crypto operators establishing  themselves in less rigorous jurisdictions to avoid oversight. However, with increased expectations amongst investors and consumers as to trust and transparency and with founders having an eye to future investment and possible exit strategies, we are seeing a move away from the offshore to the onshore. Coupled with regulatory developments including the EU-wide MiCA framework and the G20 announcement on the intention to establish standards for a global crypto regulatory framework through the Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Bank for International Settlements (BIS), jurisdiction will remain a key consideration for the industry. Once the HMT consultation on a regulatory framework for crypto assets in the U.K. closes at the end of this month, we expect to see a competitive offering from the U.K. if we seriously intend to compete for crypto business and become a crypto hub.
3. Risk and liability management: recent market events have exposed gaping holes in a few crypto businesses, both in asset terms and in corporate governance, inviting greater scrutiny by investors, consumers and regulators alike. This has resulted in an uptick in litigation and enforcement in this area with consumers and investors seeking somewhere (or someone) to attach liability to. We have seen this in the DeFi space with U.S. regulators pursuing action against token holders and DAO (decentralised autonomous organisation) members and a consequent move by a number of jurisdictions to provide DAO specific incorporation frameworks to mitigate the risk (the Law Commission of England & Wales is due to publish its response to a consultation on DAOs this year). In the English courts, builders and developers will no doubt be watching the Tulip Trading case very closely to see whether the English court will seek to impose fiduciary duties on developers of various bitcoin networks to implement a software patch to reroute otherwise inaccessible bitcoin. On the other side of the coin, we heard from specialist insurers in the crypto industry who are working on an offering of products to insure against specific risks in this space, including smart contract exploits and Director and Officer policies. 

It seems to me that attention in the blockchain industry is refocusing on how the critical components that made blockchain so attractive in the first place (decentralisation, globalisation, trustlessness, security and transparency) can be promulgated through the application of both the traditional (such as regulation and legislation) as well as the novel innovations this industry covets.