"As Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance measures evolve across jurisdictions, cross-jurisdictional interoperability is the next significant regulatory development likely to impact this industry."
How has your experience in the PE/VC sector equipped you to tackle challenges in the crypto and Web3 space?
My professional experience in the PE / VC industry was cultivated through collaborations with start-ups and investors across various traditional sectors, including technology start-ups, service industries, and real estate. A fundamental distinction between conventional tech companies and Web3 enterprises lies in the latter’s primary objective of decentralization. Consequently, from a venture capital perspective, I strive to strike a balance between established legal principles and the distinctive advantages offered by decentralization. My current focus is on leveraging my VC experience gained from traditional tech companies and applying it in a manner that eventually facilitates the realization of decentralization goals.
What immediate challenges do you see for Web3 innovations as they seek to transform traditional financial systems?
Web3 presents significant challenges in its endeavour to revolutionize traditional financial markets. While Decentralized Finance (DeFi) is a frequently discussed concept, it lacks a universally accepted definition.
Generally, it refers to an emerging ecosystem of financial products and services designed to operate with minimal reliance on intermediaries and central authorities, instead leveraging a decentralized infrastructure of public, permissionless blockchains.
A primary challenge lies in DeFi’s intersection with multiple regulatory frameworks, encompassing securities, commodities, payment instruments, and other domains. Comprehending the associated legal intricacies is crucial as a preliminary step towards addressing these complexities. To ensure sustainable growth, innovation in this sector must align with existing regulatory structures while adapting to evolving governance frameworks.
Which key policy and regulatory developments do you anticipate will have the biggest impact on the future of cryptocurrency and Web3?
The regulatory landscape for crypto-assets and Web3 has undergone significant evolution in 2024. The approval of Bitcoin and Ethereum ETFs by the United States Securities and Exchange Commission exemplifies the transformative impact of regulatory changes. Cryptocurrency has emerged as a prominent topic in the political discourse surrounding the upcoming U.S. elections. Japan has demonstrated leadership in recognizing crypto-assets and implementing regulations to foster industry growth. Indian investors have exhibited considerable interest in this sector, notwithstanding regulatory uncertainties. India has been a strong proponent of global standards for an industry that is inherently borderless in its application.
As Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance measures evolve across jurisdictions, cross-jurisdictional interoperability is the next significant regulatory development likely to impact this industry. A significant regulatory development is also likely to stem from establishing a standardized taxonomy for the industry.
Currently, numerous terms are in circulation, often with inconsistent interpretations across different contexts. To facilitate effective interoperability and clear communication, developing and adopting a universally accepted set of definitions and classifications for the industry is imperative. Notable progress has been made in this area by the U.S. Commodity Futures Trading Commission’s Global Markets Advisory Committee. They have released the industry’s first comprehensive digital asset taxonomy aimed at enhancing regulatory clarity in the United States and promoting international harmonization.
How do you view the roles of private equity and venture capital evolving with the rise of tokenized assets and blockchain fundraising?
The blockchain industry has witnessed the emergence of numerous venture capital firms, with a select few demonstrating longevity since the sector’s inception. In light of the current regulatory landscape, characterized by both a lack of comprehensive industry-wide regulations and evolving regulatory frameworks, established venture capital funds have implemented contractual mechanisms to ensure Web3 companies are prepared for token issuance. These VCs often emphasize blockchain-specific metrics, such as sufficient market participation—a crucial element of decentralization—prior to engaging in token issuance. Consequently, VCs are assuming a role that advocates for regulatory clarity. However, this presents a delicate balance, as regulations should be designed to foster innovation rather than impede it. VCs are thus contributing to the development of the broader Web3 ecosystem by leveraging their experience to guide projects and promote a more mature and sophisticated industry.
How does Hashed VC ensure global compliance while navigating varying legal standards of key jurisdictions like the U.S., Europe, and Asia?
At Hashed, as a global investor, we collaborate closely with legal counsel(s) across various jurisdictions to assess the regulatory compliance of potential investment projects. Our evaluation process focuses on several key areas, such as the classification of crypto-assets under the jurisdiction’s securities laws, the Web3 company’s implementation of AML/KYC standards, consumer protection measures, intellectual property safeguards, particularly for companies involved in NFTs, gaming, and content creation, and tax compliance.
We ensure that compliance strategies align with specific regional regulations, including Singapore’s digital payment token laws, the EU’s MiCA framework, and VASP laws in the BVI or Cayman Islands, tailoring our approach to each investment by considering both the jurisdiction of investment and the company’s primary market.
Furthermore, Hashed advocates for international standardization to mitigate jurisdictional disparities and facilitate industry interoperability. Through initiatives like the Hashed Open Dialogue for Law, we consistently produce articles, interviews, and podcasts to elucidate the legal intricacies affecting the crypto and Web3 industry in different regions. We maintain close partnerships with diverse industry stakeholders – including regulatory bodies, Web3 companies, and think tanks – across multiple jurisdictions to foster a clearer understanding of the legal frameworks governing Web3 and crypto industries. Our contributions to Korea Blockchain Week have proven particularly valuable and educational for industry participants in this regard.
In what ways do you envision Web3 reshaping urban governance and public services in the future?
Blockchain technology has the potential to enhance urban planning processes by offering secure and immutable records for property registration, facilitating smart contracts for infrastructure projects, and enabling decentralized platforms for city service management. This technology presents opportunities for increased transparency, operational efficiency and cost reduction through decentralized governance and process automation. Furthermore, blockchain-based platforms can streamline citizens’ access to utilities in a more secure and efficient manner. However, it is crucial to address regulatory uncertainties, scalability challenges, and cybersecurity concerns to ensure the effective implementation of such systems in urban environments.
About Medha Srivastava:
Medha is a corporate lawyer with extensive experience in the VC, PE and M&A space. She completed her B.A., LL.B (Hons) from the National University of Juridical Sciences in 2007 and has worked with leading Indian law firms, including Atlas Law Partners, Cyril Amarchand Mangaldas and the erstwhile Amarchand Mangaldas, for 15 years. She moved to an in-house role in 2022 when she joined Hashed as the General Counsel. At Hashed, a Seoul headquartered VC fund with a focus on web3 and blockchain, Medha is responsible for managing global investment transactions as well as involved in thought leadership on crypto law and regulations.