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Web3: Market Turmoil Highlights Need For a Unified Approach to Regulation

Rapid growth in blockchain technology and rising demand for Web3 applications has attracted the attention of global policy makers and regulators. While regulation is key amid market turmoil there are concerns that a heavy-handed approach could hinder innovation.

The collapse of certain crypto ventures and a broader selloff in financial markets has led to market uncertainty and highlights that the right regulation is needed now more than ever.

But securing a regulatory world that allows crypto and Web3  – the next-gen decentralised internet – to fulfil its potential will take coordination at an international level, according to a new alliance established this week.

The Digital Asset Policy Alliance (DAPA) is a collaborative initiative focused on the public policy implications of Web3 with initial participants from Fabric Ventures, The Coalition for a Digital Economy (Coadec), Project Vellir, NEAR Protocol and Unstoppable Finance.

Its mission is to improve knowledge and assist policy makers in making informed decisions – protecting consumers, while enabling citizens, businesses and governments to take advantage of the transformative benefits of Web3.

Web3 is defined as a new stack of technologies built on blockchain protocols that support the development of decentralised web applications and enable users to control their own identity, content, and data. Research firm Gartner recently identified Web3 as one of its 25 ‘must-know’ emerging technologies that have potential to deliver a high degree of competitive advantage over the next two to 10 years.

DAPA’s aims

According to DAPA, the alliance will work closely with governments and policy makers from around the world to ensure the technology’s full potential is realised while its risks are minimised.

Richard Muirhead, chairman and managing partner, at Fabric Ventures, says: “Web3 is a novel technological approach to driving fruitful collaboration – at scale – around many of humanity’s greatest challenges. There is a danger that heavy handed, misguided or retrofitted regulation could put its wide-ranging potential in jeopardy.”

While Anil Hansjee, general partner at Fabric Ventures, adds: “Securing a regulatory world that allows crypto and web3 to fulfil its potential will take coordination at an international level – and this is DAPA’s purpose.”

“DAPA will allow us to proactively educate, advocate, and last but not least, communicate as a collective.”

Marieke Flament, CEO at NEAR Foundation

Purpose of regulation

DAPA argues that future regulation should:

  1.  Ensure that consumers and investors are appropriately protected and that there are sensible provisions to prevent money laundering and tax avoidance
  2. Focus on enabling Web3 activity and increasing access using appropriate systems and processes, rather than preventing its use
  3. Promote and incentivise innovation, in order for new applications of distributed ledger technology to be explored
  4. Be simple and provide clarity to users and builders, while being flexible enough to respond to new Web3 applications
  5. Recognise the benefits of privacy, self-sovereignty and the freedom to transact

Peter Grosskpf, co-founder and CTO at Unstoppable Finance GmbH, said: “DeFi with all its properties of being open, permissionless, decentralised, and non-manipulatable will become the building blocks of the best and most transparent financial services and banking ecosystem that ever existed in human history.

“It’s now about finding the right ways of regulation to be able to scale it to billions of new users. We are happy to be involved with DAPA to help find the right framework.”

The alliance plans to deliver a series of papers to better inform policy makers and to act as a conduit for input to the numerous initiatives in the space. It encourages industry partners and policy makers who want to join the conversation about the future of web3 regulation to join its community.

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