A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future

After  Coinbase , FTX, and Binance successively put forward their vision for crypto regulation, Andreessen Horowitz (A16z) , a major venture capital firm in the crypto industry, put forward its own proposal for Web 3.0 regulation.

Previously, Coinbase and FTX’s regulatory proposals only focused on U.S. regulations, while A16z’s regulatory proposal this time is consistent with Binance’s, targeting “world leaders” rather than just the U.S., advocating the adoption of policies that include governments, businesses, and civil society groups. A multi-stakeholder approach to governance.

It’s time to build a better internet.

The world deserves technology that unlocks opportunities for millions of people on the edge of innovation and empowers people to take control of their digital lives.

This is Web 3.0, a set of technologies that includes digital assets, decentralized finance ( DeFi ), blockchain , smart contracts , tokens, and decentralized autonomous organizations ( DAOs ). Together, these tools enable new forms of human collaboration. They can break many of life’s deadlocks and help communities make better collective decisions about key issues such as how the network will develop, what behaviors are allowed, and how economic benefits will be distributed. 

Web 3.0 is the successor to the Internet. Just as the Internet changed the way people communicate and exchange information, Web 3.0 is defined by changing the infrastructure that moves value around the world. After the Internet, the emergence of Web 3.0 is the largest global technology ever. The first generation of the Internet, Web 1.0, was incubated within the government and civil society, and then slowly went out to the world. Web 2.0 (the big tech platforms of today) started out as small companies in a handful of regions and in just a few years became the largest commercial arbiter in human history. At the same time, Web3.0 gradually emerged from every corner of the world. DeFi currently involved in the largest number of countries are the United States, Vietnam, Thailand, China, Britain, the Netherlands and Ukraine; encryption currency used mainly included India, Pakistan, Ukraine, Kenya, Nigeria, Venezuela and Argentina. Venezuela is a representative case of how the financial application of cryptocurrencies can fill the void in economically volatile countries.

But Web 3.0 is more than just its financial origins, which is becoming more and more evident around the world. Leading Web 3.0 applications, marketplaces, and game studios have sprung up around the world, and many projects are now built by globalized, decentralized teams operating as DAOs. The international developer community is growing at an unprecedented rate.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

Web 3.0 represents a profound shift in how individuals and communities use it. Value creation and benefit distribution are being taken away from centralized players and handed over to globally distributed community members. Web 3.0 has almost limitless possibilities to enable new forms of ownership and collaboration.

However, realizing the potential of Web 3.0 depends on policymakers willing to lay the policy foundation for unleashing innovation . Thoughtful regulation can create a framework in which innovation can benefit society while excluding real risks that could harm users.

Given the rapid growth of Web 3.0, now is the time for world leaders to get involved. Policy development around Web 2.0 has been largely inadequate and slow. We shouldn’t repeat this mistake on Web3.0. Instead, policymakers should consider how they want to use digital tools in an open society, and how we should design and define the success of the next generation of the Internet.

We believe that Web 3.0 should be built around a clear set of goals. Specifically, the next-generation network should be:

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

We believe Web 3.0 will be the cornerstone of a new life-changing financial and digital infrastructure. In a decentralized system, value goes to the platform and its users rather than to intermediaries. Since they are distributed, these systems are more resilient. Current Web 3.0 projects have demonstrated their great potential.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

Whether these projects are successful or not, innovation is here to stay. These innovations include digital scarcity, trustless peer-to-peer collaboration and value exchange, auditability, and a mature digital economy.

Now is the time to work together on behalf of the international community to lay the foundations for Web 3.0 to thrive globally. This should be a joint task for policymakers, civil society and the private sector. To facilitate dialogue, this document sets out 10 key principles on how the international community should work together. While we are still in the early days of Web 3.0, work must start today.

1. Countries must have a clear vision of how to promote decentralized digital infrastructure

Because there is no single point of failure or control, Web 3.0 infrastructure is a significant improvement over existing fragile, centralized, and exclusive systems.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

National technology strategies should incorporate the benefits of blockchain technology that are vital to society, such as identity, property rights and ownership, protecting financial systems while enhancing financial inclusion and cybersecurity . Personal data sovereignty and privacy should be the cornerstone of this Web3.0. From a design perspective, this would have the added benefit of enhancing compliance with existing laws: Web 3.0’s auditability combined with privacy solutions such as zero-knowledge proofs promises to significantly reduce compliance costs.

2. Embrace multi-stakeholder governance and oversight

When it comes to the future of Web 3.0, the public sector, the private sector and society each have unique contributions in terms of expertise and perspectives. Therefore, policymakers should explore regulatory frameworks overseen by multi-stakeholder organizations. A prominent example of such an organization is the Brazilian Internet Steering Committee, a government agency established in 1995 and run by representatives of various departments that has successfully overseen innovation and access to Internet services in Brazil for nearly three decades.

3. Create targeted, risk-calibrated oversight regimes for different Web 3.0 activities

Web 3.0 encompasses a wide range of human behaviors, such as art creation and curation, video games and collecting game items, data archiving and storage, publications, lending, remittances, and more. The easiest way to summarize all of these potentials is to think of Web 3.0 as a whole. Treating all digital assets the same way is akin to having a single legal regime covering “stocks, real estate, cars, art, watches, and trading cards.”

Distinguishing between protocols and applications is key. TCP/IP, HTTP, SMTP, and TLS/SSL are all protocols we interact with every day – the building of the Internet and basic applications like email and file transfer. The technical standards for these protocols are developed by a handful of government agencies, nonprofit organizations, private sector entities, and academic institutions. Importantly, no one controls these protocols. Nonprofits like the volunteer Internet Engineering Task Force may develop specific standards, but the protocols themselves are open and co-developed. Likewise, the Ethereum blockchain adopts the open model of Web 3.0, with non-profit organizations funding the development of related technologies as part of the overall Web 3.0 ecosystem.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

Much of Web 3.0 consists of open protocols, including protocols for storage, computation, lending, and value exchange. Like the Internet protocols developed over the past 6 years, the Web 3.0 protocol thrives on the strong community that supports its development. The development of such protocols is open, distributed, and transparent, so these protocols are resistant to malicious changes and neutral to the applications that use them. Regulation should take advantage of these benefits.

4. Foster innovation through composability, open source code, and the power of open communities

Composability is a fundamental feature of Web 3.0. Just like a set of LEGO bricks can be assembled into many different looks, anyone can use smart contracts and put them together in new and different ways. If someone has already made an innovation using smart contracts, you can integrate that solution into your project modularly instead of developing it from scratch.

In Web 3.0, composability is enhanced by an open community where anyone can participate and contribute. This will lead to a further virtuous circle where contributors to successful projects will benefit from the added value. Web 3.0 can even open up entirely new financing models for public goods. Policymakers should work to accelerate these innovation flywheels—for example, by lowering barriers to entry and promoting data portability.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

5. Broaden the economic benefits of the innovation economy

In Web 2.0, the economic benefits of the web flow overwhelmingly to the large corporations that run the web . In Web 3.0, the value of the network is attributed to the users, communities and developers who actually create the value, not the middlemen. It is critical that individuals, especially those currently on the fringes of innovation, have the opportunity to create value on this new digital network and reap the benefits of their efforts.

For example, distributed networks such as Helium share economic benefits with the individuals and communities that host the network infrastructure. Playing games, like Axie Infinity , enables gamers to earn rewards and money from the games they play, and is fast becoming a global, promising new field. Likewise, the Web 3.0 creator economy enables artists, musicians, to ultimately earn most of their income from their work, rather than having the income earned by platforms and middlemen.

6. Unlocking the potential of DAOs

The corporation was the default model for organizing work activities in the private sector in the 20th century. And DAOs may become the default mechanism for fostering collaboration in the 21st century. A DAO enables individuals to collaborate, manage projects, manage assets, invest, and operate like a traditional company, but it can also provide a higher level of transparency, efficiency, and accountability than traditional corporate models. It is important to create space for this new collaborative mechanism to flourish, ensuring that DAOs have the same basic legal protections as traditional corporate structures.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

7. Deploying Web 3.0 to further the SDGs

The Web3.0 platform has the potential to drive value in supporting SDGs, for example by improving the liquidity, integrity and utility of carbon markets.

Payment-focused blockchain Celo can process 7 million transactions per ton of CO2 and become about 8 times carbon negative through offsets. By contrast, one estimate points to a 70 percent reduction in efficiency for the Visa network, which is planned to be carbon-neutral by 2040. Other Web 3.0 projects, such as MakerDAO ‘s “Clean Funding” proposal, hope to innovate at the forefront of clean energy financing. So Web 3.0 should be used in novel ways to support global sustainable development goals.

Leading Web 3.0 projects don’t need to consume a lot of energy in most cases. The Ethereum blockchain, the most commonly used protocol for Web 3.0, will soon use an energy-efficient Proof of Stake ( PoS ) consensus mechanism that reduces energy consumption by a factor of 1000.

A16z Releases Regulatory Recommendations: 10 Principles for Reshaping Web 3.0 in the Future (Original)

At the same time, policymakers should continue to work with the Bitcoin community to bring higher levels of sustainability and renewable energy use to the Bitcoin blockchain. Efforts are already underway: The Cambridge Financial Centre found that 76% of bitcoin miners are using renewable energy, and 39% of total bitcoin mining electricity consumption comes from renewable energy—twice as much as the U.S. grid.

8. Acceptance of the role of well-regulated stablecoins in financial inclusion and innovation

Over the past decade, financial technology has been incredibly successful in improving the consumer financial experience. Yet little has been done to upgrade and improve core financial infrastructure, especially in international payments, clearing and settlement. This means that billions of people around the world are left out of existing systems due to prohibitive costs.

Decentralized finance (DeFi) technology can already process hundreds of billions of dollars in transactions every day, suggesting that there is a way to solve global 24/7 instant finance. Stablecoins are a fundamental part of DeFi, and they provide a key prerequisite: a stable, programmable, native representation of digital value.

To avoid falling behind competitors and provide more opportunities for financial inclusion, the international community should support well-regulated stablecoins by providing a clear and rational regulatory framework. Facilitating the development of the stablecoin ecosystem will involve creating multiple regulatory approaches for different types of stablecoins.

Policymakers should also seriously consider the compliance benefits of stablecoins. For example, stablecoins could enable auditing and disclosure far beyond anything available to consumers and regulators today. And when combined with an appropriate privacy architecture, they could also provide national security and law enforcement agencies with new ways to detect illegal activity and impose sanctions.

9. Work with other countries to harmonize standards and regulatory frameworks

International cooperation on regulatory frameworks is absolutely necessary to realize Web 3.0. Policymakers should also examine how Web 3.0 can become an enabling technology for multilateral cooperation to address hitherto intractable global challenges.

One example: countries should work together to usher in a new era of cross-border payments. Today’s cross-border banking transactions can involve five or more intermediary banks and take days to complete due to incompatible regulatory requirements. This means that the average cost of sending a $200 remittance using traditional infrastructure is about 7%. However, cross-border payments using decentralized technology can be done in an instant with negligible fees.

Of course, international cooperation is also crucial in preventing bad actors (criminals, etc.) from taking advantage of Web 3.0. Web 3.0 infrastructure such as persistent distributed data storage can further improve security by disrupting ransomware attackers and other behaviors.

10. Provide clear and fair tax rules for reporting digital assets and leverage technology solutions to achieve tax compliance

It is in the common interest of the nation and the Web 3.0 community to promote tax compliance across the ecosystem. Tax agencies can take advantage of Web 3.0 technology wisely. If tax reporting obligations need to be expanded to capture Web 3.0 activity, it should generally be borne by actors collecting relevant information that is not available to the agency itself. With a public blockchain (public chain), no participant in the network has more information than the tax authority through proper blockchain analysis. At the same time, it makes no sense for tax collectors to publicly view every transaction of anyone, and should consider ways to improve compliance through privacy—for example, by building a robust audit trail using zero-knowledge proofs.

A16z Conclusion:

Countries that embrace these principles will be well-positioned to realize the potential of Web 3.0 and better address unexpected challenges on the road to user adoption at scale.

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