LegalBlock Activity 2

Transaction Permission Layer. A framework for self-regulation.

On March 27th, 2018, Zeppelin Solutions, one of the most respectable groups of developers in the ecosystem, released a self-regulatory proposal. We got in contact, we reviewed the material, and we found it entirely aligned with our goals. Hence we announce the analysis of said framework as a LegalBlock Activity (LBA) covered under the topic of Self-regulation Protocols.

LegalBlock Activities (LBA) are designed as a positive-sum game, where participants who are bringing something valuable to the blockchain ecosystem, present their work to LegalBlock members for analysis, feedback, and recommendation. Each Activity falls under a TOPIC of interest, previously discussed and voted by the LegalBlock community.

LBA compromise three steps in order to achieve a positive-sum network. If you are not familiar with the LBA process, you can read about our previous LBA here.

LBA-2

TPL. A framework for Self-regulation

Topic: Self-regulation Protocols

Introducing the Transaction Permission Layer (TPL) proposed by Demian Brener and Santiago Palladino (Zeppelin Solutions) on their whitepaper, as a self-regulatory framework for secure and compliant execution of digital asset transactions.

Goal:

The goal of this activity is a collaboration between Developers and Lawyers for a better understanding of the potential mechanisms operating self-regulation.

Outcome:

The outcome will be content in the form of a written publication or a set of videos, along with the announcement of this collaboration on the Panel of Regulation during the Blockchain Summit Latam to be held May 9th, in Santiago, Chile.

Steps (Dates Updated)

April 18: LegalBlock Community discussion is open. May 9: Announcement of collaboration LegalBlock-Zeppelin closing the Regulation Panel at Blockchain Summit LATAM event. Presented by Albi. May 11: Q&A Session with Demian Brener, Zeppelin Solutions CEO and co-author of the TPL framework.

A summary of TPL

TPL is an opt-in regulatory system. It stands for Transaction Permission Layer.

The system allows the creation of multiple jurisdictions on-chain, each one with its own set of rules. Each digital jurisdiction approves its Certificate Authorities to attest participants identity by signing certificates. Participants are validated off-chain via Certificate Authority, which is a third-party provider performing the KYC/AML and investor accreditation due diligence to the participants in the network.

The Certificate Authority issues a Participant Certificate, effectively placing on-chain any off-chain compliance requirements. When issuing a token, a project can demand its buyers to meet certain validation requirements, which are introduced within the token smart contract code itself. The protocol then validates that participants meet these requirements, and approves transactions automatically if they are met.

The logic for transaction approval can be automated and built-in within the smart contract code of a token or an exchange. TPL can enforce any compliance rule required by a project sponsoring an asset, assuring that all participants in a transaction have been adequately vetted. This mechanism allows any project to ensure that not only their ICO will be compliant, but also any subsequent transactions of their asset between any third parties since the contract itself can reject any operations from unauthorized users.

Collaboration

Zeppelin and LegalBlock are aligned with their values

As per LegalBlock conceptual paper, we want a Positive Sum Network. “A positive sum occurs when resources are somehow increased, and an approach is formulated in which the ​desires ​and ​needs ​of ​all ​concerned ​are ​satisfied.”

On their side, Zeppelin believes in Open Source as their root value. TPL is a community effort, sponsored and initially led by Zeppelin, but it aims to be a Community-driven framework.

This excerpt from Zeppelin’s TPL Framework Proposal is worth to mention

“To be successful, the integration must be led from within, proposing clear guidelines on how to onboard institutional players. TPL is a first approach in this direction, providing a self-regulatory framework to support formal decentralized economies while preserving users freedom to assemble and innovate.”

How to participate?

If you are a Legal practitioner -or related to- in any jurisdiction, and you lean to this idea, you are welcome to join us. All the discussion is happening in our Slack group where we gather the questions. We hold at least one activity per quarter, per topic. Not all the activities are designed in the same way. We the Catalysts propose, and the LegalBlock community vote.

If you are a member of LegalBlock: DO NOTHING. Join the Slack discussion on #self-reg channel, get to know more about the TPL with the material provided and leave your questions or comments there. You will receive the link to participate in the Q&A session.

If you are not a member, please fill out this form to receive your invitation to participate.

Resources for LBA2:

Get familiar with the TPL proposal. Read Zeppelin’s TPL — A Framework for Secure Peer-to-Peer Exchange post as a first step. You will find detailed information, including technical, posted on our Slack channel dedicated to the topic of self-regulation protocols.

From a decentralized world with love, The Catalysts.

DISCLAIMER: Blockchain is a disruptive technology that introduces several doubts about its legal nature. LegalBlock aims at being an open forum in which its members and invitees can share views and comments on such technology and its impact on different legal systems. However, the views and discussions expressed in LegalBlock are merely personal and do NOT constitute legal advice of any sort and do NOT necessarily reflect those of the LegalBlock.